Markets drop amid debt deal fears

Stocks fell Monday amid increased worries that lawmakers and the White House will fail to reach a deal to raise the $14.3 trillion debt ceiling by an Aug. 2 deadline.

Though Speaker John Boehner (R-Ohio) and House Majority Leader Eric Cantor (R-Va.) met with President Obama at the White House on Sunday to discuss a debt-ceiling deal, negotiations on a grand bargain that would cut spending and reform entitlements and taxes appear stalled.

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“As we said through the weekend, the lines of communications are being kept open. But there is nothing to report in terms of an agreement or progress,” said Kevin Smith, a spokesman for Boehner.

Major indexes dropped with the morning bell, as the Dow Jones Industrial average fell more than 150 points on Monday morning before closing down 94 points. The price of gold, meanwhile, surged to a high of $1,600 per ounce as investors sought out safe ground.

Though U.S. bonds remained steady, the falling stocks highlight increased worries on Wall Street about the status of the debt-ceiling talks, as well as fears over the European debt crisis.



FitchRatings warned Monday it would lower the U.S. AAA credit rating to a B by Aug. 4 if the two sides do not reach a deal. This followed additional warnings from other credit ratings agencies.


Obama and congressional leaders are running out of time to reach a deal before an Aug. 2 deadline, when the Department of Treasury says it will not be able to pay all the nation’s bills. Obama has warned he cannot guarantee that Social Security payments will be made on Aug. 3.

Treasury Secretary Timothy Geithner on Monday said there is no alternative to raising the debt ceiling.

The House plans to vote Tuesday on legislation to cut and cap spending and balance the budget, but the bill is not expected to move forward in the Senate, and the White House on Monday threatened to veto it.

In a statement of administration policy, the White House Office of Management and Budget labeled the GOP bill an “empty political statement” that was unrealistic and unnecessary.

“Neither setting arbitrary spending levels nor amending the Constitution is necessary to restore fiscal responsibility,” the White House said in its statement. “Increasing the federal debt limit, which is needed to avoid a federal government default on its obligations and a severe blow to the economy, should not be conditioned on taking these actions. Instead of pursuing an empty political statement and unrealistic policy goals, it is necessary to move beyond politics as usual and find bipartisan common ground.”

The House Rules Committee is expected to take up the measure on Monday, and it is likely to receive a floor vote on Tuesday. The measure would cut spending in Fiscal Year 2012 by $111 billion, cap future spending at 19.9 percent of gross domestic product and would allow for the debt ceiling to be increased if a balanced budget amendment is approved by Congress and sent to the stats. Support for the measure has increased markedly in the last two weeks, and Rep. Michele Bachmann (Minn.), a GOP presidential candidate and Tea Party favorite, was expected to endorse it on Monday.

“We believe cut, cap and balance represents the best path forward and are looking forward to the House vote on it tomorrow,” Smith said in a statement.

Senate leaders are continuing to work off a proposal offered last week by Senate GOP Leader Mitch McConnell (Ky.) that would give responsibility for raising the debt ceiling to Obama. McConnell’s proposal would likely be combined with $1.5 trillion in spending cuts, but it has won opposition from GOP conservatives who do not want to give Obama permission to raise the debt ceiling.

This story was updated at 5:06 p.m.

Sam Youngman and Peter Schroeder contributed to this story.

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