THE testy negotiations over raising the US debt ceiling hit a new low - prompting the normally cool President Barack Obama to storm out of a meeting with Republican Congressional leaders.
'Don't call my bluff,' he told them, adding that he was willing to stake his presidency on the issue.
Meanwhile, Moody's issued a warning of a possible cut to the US's credit rating, raising what appear to be the first serious concerns on Wall Street that the Aug 2 deadline for raising the debt ceiling might come and go without an agreement.
The ratings agency put the US's triple-A rating on review for a possible downgrade late Wednesday, saying that the government's inability to reach an agreement on raising its borrowing limit is raising the risk of default. The government has until Aug 2 to raise the debt ceiling, or it will default on some of its financial obligations
'These guys are really starting to push it, essentially playing chicken with the worldwide credibility of US debt at stake, and for the first time, it's not impossible to see this game of 'who blinks first' ending with a disastrous, full-one collision,' said Larry Adam, chief market strategist at Deutsche Bank Wealth Management.
The negotiations on trimming the US budget deficit and raising the debt ceiling by Aug 2 grew heated enough on Wednesday that President Obama and House Majority Leader Eric Cantor got into a dust-up that produced 'He-said, She-said' headlines. Mr Cantor said that Mr Obama 'abruptly' walked out, while one of the Democrats in the room said that Mr Obama 'lit up Eric Cantor like he's never been lit up'.
Matters came to a head when Mr Cantor pushed for a short-term deal anchored on spending cuts.
President Obama said he would veto such a stopgap measure, warned Mr Cantor 'don't call my bluff', and declared himself ready to take his case to US voters.
He left the meeting in a huff, leaving Mr Cantor speechless.
'I've reached my limit. This may bring my presidency down, but I will not yield on this,' according to a Republican aide.
'What's next,' asked Steven Bernstein, an equities portfolio manager attending an asset management conference in midtown Manhattan yesterday afternoon, 'A fist fight between Mr Cantor and President Obama in the Oval Office?'
That hyperbolic scenario is about as likely as the two sides failing to at least agree to extend the debt ceiling for another few months while the Republican-controlled House of Representatives and the Democrat-controlled Senate and President Obama jockey over how to go about trimming the ballooning budget deficit without harming major entitlement programmes for poor Americans.
'Don't call my bluff,' he told them, adding that he was willing to stake his presidency on the issue.
Meanwhile, Moody's issued a warning of a possible cut to the US's credit rating, raising what appear to be the first serious concerns on Wall Street that the Aug 2 deadline for raising the debt ceiling might come and go without an agreement.
The ratings agency put the US's triple-A rating on review for a possible downgrade late Wednesday, saying that the government's inability to reach an agreement on raising its borrowing limit is raising the risk of default. The government has until Aug 2 to raise the debt ceiling, or it will default on some of its financial obligations
'These guys are really starting to push it, essentially playing chicken with the worldwide credibility of US debt at stake, and for the first time, it's not impossible to see this game of 'who blinks first' ending with a disastrous, full-one collision,' said Larry Adam, chief market strategist at Deutsche Bank Wealth Management.
The negotiations on trimming the US budget deficit and raising the debt ceiling by Aug 2 grew heated enough on Wednesday that President Obama and House Majority Leader Eric Cantor got into a dust-up that produced 'He-said, She-said' headlines. Mr Cantor said that Mr Obama 'abruptly' walked out, while one of the Democrats in the room said that Mr Obama 'lit up Eric Cantor like he's never been lit up'.
Matters came to a head when Mr Cantor pushed for a short-term deal anchored on spending cuts.
President Obama said he would veto such a stopgap measure, warned Mr Cantor 'don't call my bluff', and declared himself ready to take his case to US voters.
He left the meeting in a huff, leaving Mr Cantor speechless.
'I've reached my limit. This may bring my presidency down, but I will not yield on this,' according to a Republican aide.
'What's next,' asked Steven Bernstein, an equities portfolio manager attending an asset management conference in midtown Manhattan yesterday afternoon, 'A fist fight between Mr Cantor and President Obama in the Oval Office?'
That hyperbolic scenario is about as likely as the two sides failing to at least agree to extend the debt ceiling for another few months while the Republican-controlled House of Representatives and the Democrat-controlled Senate and President Obama jockey over how to go about trimming the ballooning budget deficit without harming major entitlement programmes for poor Americans.
Nevertheless, the dust-up at the White House, coupled with grim warnings from the two major US ratings agencies about the dire outcome of a failure to raise the US debt ceiling by the deadline, has put the already-nervous financial markets into a state of high alert.
S&P also told lawmakers that if the US misses any payments it too might cut the country's credit rating.
Federal Reserve chairman Ben Bernanke, speaking to lawmakers in the Senate yesterday, said the central bank isn't ready to take further action to bolster the economy yet. The Fed chief said on Wednesday that it would consider loosening monetary policy further, should the economy weaken.
During yesterday's session, he urged lawmakers to keep in mind that the US recovery is still at a delicate stage when they consider actions to cut the debt and deficit.
'In the very near term, the recovery is rather fragile,' Mr Bernanke said to the Senate Banking Committee, and 'sharp' cuts in the deficit could harm the recovery.
He added that a loss of investor confidence could complicate the rollover of the US government's debt.
'It is entirely possible that loss of confidence or political risk could raise interest rates and make it more difficult or expensive to roll over the debt.'
His comments closely reflect remarks delivered to a House of Representatives panel on Wednesday in which he said that 'failure to raise the debt ceiling could throw the financial system into disarray' and worsen the already bleak employment situation.
So far, investors haven't let the threat of a US default or downgrade spook them into a sell-off type of panic, but that may occur if the posturing by both sides shows no signs of abating in coming days. 'No one wants to consider the consequences because it would be an unprecedented and terrible event, but with every passing day the possibility seems to becoming more real,' Mr Adam said.
'I think we get the debt ceiling raised in plenty of time, but Washington should listen to the message from Wall Street before that message becomes a huge, screaming sell-off,' he said.
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