Lew Says Investors May Be Too Hopeful on Debt-Limit Debate

U.S. Treasury Secretary Jacob J. Lew said investor confidence that a deal can be struck to raise the debt limit is “a bit greater than it should be” and the government probably will have less than $50 billion in cash by mid-October.

Lew, who spoke at the Bloomberg Markets 50 Summit in New York today, repeated that President Barack Obama won’t negotiate with congressional Republicans on increasing the $16.7 trillion ceiling on the nation’s borrowing authority.

Lew told Congress in an Aug. 26 letter that lawmakers need to raise the limit by the middle of October, when he expects that the Treasury Department will have about $50 billion left to fund the government. That figure is probably smaller now, he said today.

“I think that if you look at the calm out there, which I think is a bit greater than it should be, there’s a sense that 2011 was a terrible experience, and nobody would do that again,” Lew said.

The U.S. was stripped of its AAA ranking by Standard & Poor’s in August 2011, a move that partly reflected an impasse in Congress over raising the debt ceiling as well as the government’s lack of a plan to rein in its debt load.

While the downgrade didn’t result in investors charging the U.S. more to borrow, as 10-year Treasury yields slipped to record lows in July 2012, the move contributed to a global stock-market rout that erased about $6 trillion in value from July 26 to Aug. 12, 2011.

‘Short Period’

“People have to take seriously the fact that Congress has a lot of work to do in a short period of time,” the Treasury Secretary said.

U.S. stocks fell for a fourth day amid concerns over budget talks and economic growth as investors weighed prospects for easing tensions in the Middle East. The Standard & Poor’s 500 Index fell 0.3 percent to 1,697.42 at 4 p.m. in New York. The S&P 500 has declined 1.6 percent over four days after reaching an all-time high of 1,725.52.

Treasury 10-year note yields fell to the lowest level in six weeks as investors bet the Federal Reserve will maintain monetary stimulus as it awaits a pick-up in economic growth, stoking demand for government debt. The benchmark 10-year note yield fell five basis points, or 0.05 percentage point, to 2.66 percent at 5 p.m. in New York.

Lew also said today that the U.S. sanctions against Iran, which are administered by the Treasury, are working.

Pushing Hard

“We now have to see if the government is going to change its policy,” Lew told moderator Al Hunt of Bloomberg View. “We are going to stay on the sanctions and push as hard as we can.”

Obama today said recent overtures from Iran may offer a basis for a “meaningful agreement” to resolve the confrontation over the Persian Gulf nation’s nuclear program, one of the primary sources of instability in the Middle East.

“Conciliatory words will have to be matched by actions that are transparent and verifiable,” Obama told world leaders today at the United Nations in New York. “The roadblocks may prove to be too great, but I firmly believe the diplomatic path must be tested.”

While administration officials say U.S.-led economic sanctions are forcing a new tone from the Iranian government, U.S. allies, including Israel, are warning the U.S. not to fall into a diplomatic trap of granting concessions without concrete steps by Iran to back away from its nuclear-development program.

Dodd-Frank

On the Dodd-Frank financial overhaul law, Lew said the administration has “done a lot” to end too-big-to-fail, or the chance that the government will have to bail out large banks in the future.

“At the end of the year, we have to ask, ‘Have we done enough?’” He didn’t elaborate on what additional measures could be taken.

Regulators have been debating how to implement the Volcker rule ban on proprietary trading, part of the law named for former Federal Reserve Paul Volcker. Lew said “we’re pushing” to complete the rule by the end of the year.

While the Treasury Department isn’t responsible for writing the rule, it’s coordinating the regulators’ efforts.

To contact the reporters on this story: Ian Katz in New York at ikatz2@bloomberg.net Jeanna Smialek in Washington at jsmialek1@bloomberg.net;

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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