Wall Street chiefs in plea for deal on US budget

In an extraordinary intervention in the drama in Washington over efforts to raise the debt ceiling and save the US from running out of cash, the heads of several Wall Street banks wrote yesterday to the White House and Congress warning of "grave" consequences if a deal isn't done.

"A default on our nation's obligations, or a downgrade of America's credit rating would be a tremendous blow to business and investor confidence – raising interest rates for everyone who borrows, undermining the value of the dollar, and roiling stock and bond markets – and, therefore, dramatically worsening our nation's already difficult economic circumstances," the Wall Street chiefs wrote.

That the leaders of such institutions as Bank of America, Goldman Sachs, JP Morgan Chase, Morgan Stanley and Wells Fargo spoke out was meant clearly to put additional pressure on all sides to accelerate negotiations and find a way through a weeks-long political impasse. Failure to find to find a solution would a "very grave thing", the letter said. Among the signers were Jamie Dimon for JP Morgan Chase and Lloyd Blankfein for Goldman.

The contents of the letter were revealed just as the House of Representatives was ready to adopt a stop-gap bill crafted by Speaker John Boehner that would solve the problem only in the short term. Both the Democratic leadership in the Senate and the White House were warning that the formula to cut spending and raise the debt ceiling would be insufficient.

All the while, however, the dollar and US stock markets retained a certain sangfroid in the face of the political wrangling and the chaos that might follow a US Treasury debt default on 2 August.

Demand for US Treasury bonds was also stronger. According to a Reuters survey of economists, two-thirds expect a downgrade in August, and a complete failure of the negotiations has become a real possibility. However the markets appear to be in denial. The Dow Jones average rose slightly in early trading, while the dollar edged up against the euro. Indeed, it is the much more fundamental sovereign debt crisis in the eurozone that has probably had investors opting for the – relative – safety of US assets yesterday.