As noted by David Frum, a conservative pundit and former speechwriter for President George W. Bush, there is a growing consensus among both conservative and mainstream Republicans who think a technical default is a manageable outcome. This list includes presidential candidate and former Minnesota governor Tim Pawlenty, who has announced support for a short-term default if it leads to deep and immediate spending cuts. Additionally, the ranking member and chair of the Senate and House Budget Committees, respectively Jeff Sessions (R-AL) and Paul Ryan (R-WI), have both stated that failing to raise the debt limit would not, in fact, lead to immediate disaster. And, of course there is Sen. Pat Toomey (R-PA) who is leading an effort to push the Treasury to prioritize debt service over other payments in the event the debt ceiling is not raised.

On the other end of the spectrum the Administration continues to stress that even a limited default would have catastrophic results, causing upheaval in the markets and the potential for a second recession. They are slowly being joined in this effort by leading voices on Wall Street. Earlier this week a Bank of America/Merrill Lynch executive stated that $25.6 billion in Treasury interest payments due on August 15th will be imperiled if the August 2nd deadline is not met. If this were to occur, he went on to state that money market mutual funds that invest in short-term government bills could break the buck (i.e., fall below $1 per share). Many Americans use money market accounts, which are valued for their liquidity and safety, and if they were to break the buck it could lead to a panic.  

In the meantime, it appears that discussions amongst the “Biden group” will be increasing as the Obama administration indicated that for the rest of the month there will be three meetings per week in an attempt to draft a deficit-reduction plan before the July 4th recess. Also, the most anticipated foursome in DC outside of the US Open will be teeing off on next Saturday when President Obama and Speaker Boehner hit the links.

If a deal can be struck by the July 4th recess, it would still leave time for Congress to complete language in order to work out an agreement on the debt ceiling in advance of August 2nd. Additionally, it also provides enough lag time that if the deal can‟t pass muster in Congress (a la the first TARP vote) there will be time for a plan B before the August 2nd deadline.  

Finally, though perhaps least importantly, on Thursday the Gang of Five, in an attempt to remain relevant, shared preliminary details of its deficit reduction plan with a group of about 20 Senators – an even split of Democrats and Republicans – in order to amass feedback before the formal release of a plan. Senate Budget Chairman Kent Conrad (D-ND), one of the plan‟s authors, stated that the recommendations are not yet finalized, and it was still unknown when the group might make it public. Members of the group have stated that the proposal aims to trim the deficit by about $4.7 trillion over the next decade, and includes spending cuts, tax increases and changes to entitlement programs. Insiders have also stated that this proposal will go further than the President‟s fiscal commission recommendations issued last year.