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The Edge Archive

Treasury's Crisis of Faith—THE EDGE Brought to you by AbbVie Inc.

October 9, 2013

By Patrick Reis and Dustin Volz

TODAY IN ONE PARAGRAPH: President Obama formalized his nomination of Janet Yellen to head the Fed. Congress remains deadlocked over the shutdown, but the House unanimously passed a measure that would restore financial payments the Pentagon makes to families that have endured the loss of a military family member. Harry Reid made his opening offer on the debt ceiling today, introducing legislation that would lift the limit through the end of 2014 and do nothing else. And Wall Street sent Washington a sharp reminder of how dangerous it is to dance with default: The nation's largest manager of money-market mutual funds said it is no longer willing to hold certain types of U.S. debt.

TOP NEWS

OBAMA NOMINATES YELLEN TO BE NEXT FED CHIEF: With current Fed Chairman Ben Bernanke standing by, President Obama announced his nomination of Janet Yellen, the central bank's current vice chair, to become the next chief when Bernanke's term finishes at the end of January. Obama called Yellen "one of the nation's foremost economists and policy makers." (Jackie Calmes, NYT)

YELLEN MAY FACE BRUISING CONFIRMATION PROCESS: Thanks to Sen. Ted Cruz—who said this summer he sees the Fed nominee fight as potential for "leverage"—and others, Yellen's Senate confirmation is unlikely to be either quick or painless. (NJ)

 

WATCH OUT WALL STREET: Yellen has a reputation, and a record, of being a tough-as-nails financial regulator. (NJ)

SHUTDOWN LATEST: The House unanimously passed a measure to restore financial payments the Pentagon makes to families that have endured the loss of a family member who was in the military. The payments had been frozen due to the shutdown. (Pete Kasperowicz, The Hill)

DEBT-CEILING LATEST: The text of Reid's debt-ceiling bill. (Spoiler: It would raise the ceiling through the end of next year, and it contains exactly zero of Republicans' demands.)

FIDELITY INVESTMENTS SELLS OFF U.S. DEBT: "The nation's largest manager of money-market mutual funds said Wednesday that it no longer holds any U.S. government debt that comes due around the time the nation could hit its borrowing limit." A spokeswoman didn't mince words: "We expect Congress will take the steps necessary to avoid default, but in our position as money market managers we have to take precautionary measures." (Ken Sweet, AP)

WHY IT MATTERS: About the best thing the federal government has going for it right now is the world's absolute faith that it will pay back its debts. That's why the country can continue to borrow money at outrageously low rates even though it's $17 trillion in debt. If lenders were to lose faith and demand higher rates, it could set off the type of sovereign-debt crisis that brought Greece to its knees: Higher borrowing costs increase debts, increased debts shake investor faith, shaken investor faith produces higher borrowing costs, and the cycle repeats. Fidelity's move is only a tiny step in that direction, but it's a step, and a reminder of how dangerous it is to even hint at default.

THE DEBT CEILING IS BREAKING BEN BERNANKE'S HEART: Bernanke has spent half of a decade trying to coax investors out of their post-recession bunkers. Now, Congress is set to once again send them running for cover (NJ).

CUTTING AID IN EGYPT WILL HAVE CONSEQUENCES: The decision to halt some U.S. aid to the country, along with the trial of ousted President Mohamed Morsi early next month, could "threaten to add to the turmoil" in Egypt and push the country to seek assistance from some U.S. rivals. The move also highlights a strategic shift in the U.S. approach to the Gulf region as further attempts to reach out to Iran continue in earnest. (Deb Riechmann, AP)

SLASHING AID IS A GOOD IDEA, AND A BAD IDEA: Some of the ramifications will be wide-ranging and immediate, while others will take longer to tease out. But any way you dice it, pulling back on aid in Egypt matters. WaPo runs down the reasons why the move is a good thing, as well as why it isn't. (Max Fisher, WaPo)

TOMORROW IN ONE PARAGRAPH: House Republicans will meet with Obama to discuss the debt ceiling and government shutdown. Speaker John Boehner, Majority Leader Eric Cantor, and Reps. Steve Southerland, R-Fla., and Lynn Jenkins, R-Kan., are among 18 lawmakers expected to attend. The Senate Finance Committee will hold a full hearing on the debt limit at 8 a.m. Treasury Secretary Jacob Lew will testify. HHS Secretary Kathleen Sebelius will hold an Affordable Care Act education and enrollment event with Pittsburgh Steelers Chairman Dan Rooney and retired Steelers players at 4 p.m.

TOP LINES

THE POWER OF YELLEN: Yellen is set to become the most powerful woman in U.S. history, usurping a title once held by Hillary Clinton, Madeleine Albright, and Nancy Pelosi. (Matt Phillips, Quartz)

D.C. MAYOR CONFRONTS REID: Vincent Gray told Harry Reid to exempt the city from the shutdown, prompting Reid to offer: "I'm on your side, don't screw it up, okay?" (DeBonis/O'Keefe, WaPo)

FED TAPERING: The central bank's minutes show they still hope to draw back on its monthly bond-purchasing program later this year. (Mcgrane/Derby, WSJ)

SYRIA: Assad's regime continues to place nice and be "cooperative" with the destruction of its chemical weapons stockpile, says a watchdog group. (Nick Cumming-Bruce, NYT)

TOP READ

DAVE CHAPPELLE, A DECADE AFTER HIS SELF-IMPOSED EXILE: Where in the world has Dave Chappelle been for the last 10 years? He disappeared from Comedy Central virtually overnight—sparking a host of wild (and now disproven) stories about the reason for his departure—but the "funniest comic standing" is still doing what he loves most: having fun, being funny, and taking care of his family and himself. (Rachel Kaadzi Ghansah, Believer)

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