'Scenarios: Obama's options if no deal on debt ceiling hike'

from reuters.........

"If the impasse over the debt limit is not broken by early next week, President Barack Obama will be forced to make decisions about how he will manage the crisis.

Treasury Secretary Timothy Geithner and a small team of his aides have been working on contingency plans should Congress fail to raise the U.S. borrowing limit by an August 2 deadline.

The administration has said little in public about its plans and there is disagreement among private-sector experts on the feasibility of some of the options. A number of them are complicated and could provoke a political backlash.

Even if the administration were to implement some of the options, the debt deadlock could still trigger turmoil in financial markets, sending the dollar lower and U.S. interest rates higher and putting the economy at risk.

Here is a look at the steps Obama could consider:

SALE OF ASSETS:

Treasury could consider selling off some of the government's assets, including holdings of gold and mortgage-backed securities. U.S. officials say this option has major drawbacks because it would show the world the United States is having difficulty honoring its obligations. These officials say the government might also have to accept fire-sale prices for the assets and that the sales likely would not buy much time.

ENLISTING HELP OF THE FEDERAL RESERVE

In a sign that financial authorities were coordinating closely on the unfolding debt drama, Geithner met on Friday with Federal Reserve Chairman Ben Bernanke and New York Federal Reserve Bank President William Dudley.

Philadelphia Fed President Charles Plosser told Reuters the U.S. central bank, which acts as the Treasury's broker in financial markets, could not step in and borrow money on the Treasury's behalf. He said that would amount to conducting fiscal policy, which is not part of the Fed's mandate.

But the Fed might need to become involved in some operational issues since it clears checks for the government for everyone from Social Security recipients to federal workers.

Plosser said the issues that would need to be looked at include: "How the Fed is going to go about clearing government checks? Which ones are going to be good? Which ones are not going to be good?"

Because the New York Fed is regularly in close contact with financial market participants, the central bank would also play a crucial role in monitoring the market reaction if a default or U.S. credit downgrade were to spark a panic among investors. The central bank played a similar role during the 2008 financial meltdown following the collapse of Lehman Brothers".............READ MORE