Late Night: Moody’s Reviewing Downgrade of U.S. Credit Rating; Obama Slaps Down Eric Cantor.

Eric Cantor

Bloomberg:

The U.S., rated Aaa since 1917, was put on review for the first time since 1995 on concern the debt threshold will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes even though the risk remains low, Moody’s said in a statement yesterday. The rating would likely be reduced to the Aa range and there is no assurance that Moody’s would return its top rating even if a default is quickly cured.

President Barack Obama is considering summoning congressional leaders to Camp David this weekend to work on a plan to raise the debt ceiling after yesterday’s negotiations on a deficit-cutting plan of at least $2 trillion stalled, according to two people familiar with the matter. A failure to raise the debt limit that causes a default may lead to slower economic growth and another financial crisis.

“It’s obviously very serious in so many different ways,” said James Caron, head of U.S. interest-rate strategy at Morgan Stanley in New York, one of 20 primary dealers that trade bonds with the Federal Reserve. “Most people still believe there will be some type of an agreement struck to avoid all this stuff, and that’s what the market’s banking on.”

Meanwhile, according to the NYT, Fed Chairman Ben Bernanke

warned on Wednesday of a “huge financial calamity” if President Obama and the Republicans cannot agree on a budget deal that allows the federal debt ceiling to be increased. Moody’s, the ratings agency, threatened a credit downgrade, citing a “rising possibility” that no deal would be reached before the government’s borrowing authority hits its limit on Aug. 2.

The one piece of good news is that President Obama may be finally waking up to the reality that Republicans are totally insane and there is no point in negotiating with them.

the latest bipartisan negotiating session on Wednesday evening ended in heightened tension, if not outright discord. Republicans said Mr. Obama had abruptly walked out in an agitated state; Democrats described the president as having summed up with an impassioned case for action before bringing the meeting to a close and leaving.

Politico has a better description of what happened–basically, Obama told lit into Eric Cantor and brought him up short for once.

When Cantor said the two sides were too far apart to get a deal that could pass the House by the Treasury Department’s Aug. 2 deadline — and that he would consider moving a short-term debt-limit increase alongside smaller spending cuts — Obama began to lecture him.

“Eric, don’t call my bluff,” the president said, warning Cantor that he would take his case “to the American people.” He told Cantor that no other president — not Ronald Reagan, the president said — would sit through such negotiations.

That’s Cantor’s version. Democratic sources said that

“Cantor’s account of tonight’s meeting is completely overblown. For someone who knows how to walk out of a meeting, you’d think he’d know it when he saw it,” a Democratic aide said. “Cantor rudely interrupted the president three times to advocate for short-term debt ceiling increases while the president was wrapping the meeting. This is just more juvenile behavior from him and Boehner needs to rein him in, and let the grown-ups get to work.”

Now here’s the kicker:

“Obama lit him up. Cantor sat in stunned silence,” said an official in the meeting. “It was incredible. If the public saw Obama he would win in a landslide.”

Maybe Obama really does have some balls guts? Maybe it just took a snot-nosed squirrely creep like Cantor to get a rise out of him. It does seem that for once Obama has managed to force the Republicans into a corner by offering cuts in Medicare and Social Security and then threatening not to write checks in August.

Stay tuned. There will be more discussions at the White House tomorrow afternoon. Maybe it’s time for Obama to do the the Chicago way. The heck with bipartisanship–time for some major arm-twisting. Just raise the frickin’ debt ceiling and be done with it.