By Greg Hunters USAWatchdog.com
I have been telling you for the past few days that I am not so sure Congress and the White House will get a debt ceiling deal done to avoid default on August 2nd. The grand plan was to raise the debt ceiling around $2.5 trillion to allow the U.S. to borrow money and pay all of its bills. Just this week I said, given the polarization between Democrats and Republicans in the House of Representatives, a debt deal is not going to be easy, if they can do one at all. I think eventually there will be a debt deal, but not until after August 2nd and not until things turn really sour in the economy.
I am talking about a spike in interest rates, inflation and unemployment, and that’s just for starters. Senator Ted Kaufman from Delaware gives the “no deal” scenario a 60% chance. I think its higher than that, and maybe the Fed does too. Now, we find out the Federal Reserve has been quietly working with the Treasury Department for the past few months to come up with a plan of action if the debt ceiling is NOT raised.
The headline in a Newsmax.com story yesterday said it all: “Fed Prepares for Doomsday as Debt Deadline Nears.” The story went on to say, “The Federal Reserve is actively preparing for the possibility that the United States could default as a deadline for raising the government’s $14.3 trillion borrowing limit looms, a top Fed policymaker said on Wednesday. Charles Plosser, president of the Philadelphia Federal Reserve Bank, said the U.S. central bank has for the past few months been working closely with Treasury, ironing out what to do if the world’s biggest economy runs out of cash on August 2. “We are in contingency planning mode,” Plosser told Reuters in an interview at the regional central bank’s headquarters in Philadelphia. “We are all engaged. … It’s a very active process.” Plosser said his “gut feeling” was that President Barack Obama and Congress will come to an agreement to increase the Treasury’s borrowing authority in time to avert a default on government obligations.” (Click here to read the complete News Max story.)