By Scott Malone

BOSTON (Reuters) - Memo to Washington from corporate America: unemployment is high, confidence is low and your bickering over the country's debt is the last thing we need.

As the days tick down to the August 2 deadline for a compromise in the capitol that will allow the United States to avoid defaulting on its debt, chief executives are looking to a big lesson of the financial crisis -- the best security is in cash.

They are holding out hope that lawmakers will agree on a way to raise the $14.3 trillion debt ceiling, even as they keep an eye on economic developments overseas.

"These compromises never seem to come together until the 24th hour. It looks like that's how this one is going to play out," said Sandy Cutler, CEO of diversified U.S. manufacturer Eaton Corp <ETN.N>. "It's noisy and it's causing short-term concern, particularly for consumers, about whether they should make an expenditure."

The standoff in Washington, D.C., has added to worries about debt crises in Greece, Portugal and Ireland that are threatening the economic stability of Europe.

"I was in Europe recently, and we were having a debate with some of our European team over which region of the world had the bigger problem: is it the Europe sovereign debt crisis or the U.S. structural budget deficits and debt ceiling?" said Thomas Falk, CEO of consumer products maker Kimberly-Clark Corp <KMB.N>. "It's just disappointing that the two biggest economies in the Western world can't seem to get their fiscal house in order."

HOLDING OFF ON HIRING

Companies concerned about these crises are delaying hiring at a time when high unemployment in the United States is a major hurdle to economic recovery.

Honeywell International Inc's <HON.N> Chief Financial Officer Dave Anderson said the stalemate in Washington and concerns over corporate tax reform and European sovereign debt were among the principal factors affecting business sentiment.

The world's largest maker of cockpit electronics is trying to keep its costs down and avoid hiring too many people.

Bankruptcy attorney Martin Bienenstock, of Dewey & LeBoeuf LLP, said it seemed like most business people were dismissing the likelihood of a default

"People still don't think there is going to be an actual default," Bienenstock said. "There doesn't seem to be any domino effect brewing yet with the concept of 'rates will rise and companies on the brink will fail and things like that.'"

The battle in Washington largely revolves around whether the budget can be balanced entirely by cutting spending, as some Republicans want, or through a combination of tax increases and spending reductions, as some Democrats advocate.

While businesses would balk at paying higher taxes, CEOs have said that what they want right now is to have the tax debate settled so they know what they will be paying in taxes.

CASH IS THE BEST DEFENSE

Executives at industrial companies said the best defense if the United States defaults would be to have enough cash to weather any period in which lending dried up.

"We always think the most fundamental risk is a liquidity risk. You have to ensure you have prophylactic devices in place that allow you to withstand six-, nine- or 12-month periods of liquidity risk," Eaton's Cutler said. "It served us very well during the 2008-2009 downturn."

Eaton, which makes truck transmissions and electrical products, had $282 million in cash and $601 million in short-term investments at the end of the second quarter.

General Electric Co <GE.N> cited a similar defense. The largest U.S. conglomerate has more than doubled the amount of cash it holds to $91 billion since the financial crisis, though not specifically because of the debt talks.

While executives said they hoped cash reserves would tide their companies through any lending crunch, some said a U.S. default would send the economy into uncharted territory.

"I'm not sure how one prepares for a default since we've never had one in the history of our country," said Clay Jones, chief executive of Rockwell Collins Inc <COL.N>, which makes components used in aircraft. "There is no playbook that I know of that suggests here's what one should do either as a company or a private citizen when the country starts going out of business."

(Additional reporting by Nick Zieminski and Lynn Adler in New York, Jessica Wohl in Chicago, Karen Jacobs in Atlanta, Tom Hals in Wilmington, Delaware, and Alistair Barr in San Francisco. Editing by Robert MacMillan)