The US remained on course yesterday for a potentially calamitous debt default, with common ground still elusive on a deal that would let Washington borrow the cash it needs to to pay its bills.
The White House and its divided Republican foes clashed on Tuesday, but failed to break an impasse that could see the world’s richest nation default on its debt, with potentially ruinous global results.
The US dollar slid on Tuesday against key currencies and US stocks fell as markets measured the risk of an Aug. 2 deadline passing without a breakthrough.
Meanwhile, officials from key credit rating agencies were likely at a congressional hearing yesterday to lay out the perils to the entire global economy of a US default.
The executives were to appear at a hearing by the House Financial Services Committee to discuss federal oversight of credit ratings agencies, but were sure to be questioned on the ramifications of US debt default and a possible credit rating downgrade on the US and world economies.
Among those on the witness list were Deven Sharma, president of Standard & Poor’s and Michael Rowan, global managing director of Moody’s Investors Service’s commercial group.
Meanwhile, the White House and its divided Republican foes clashed on Tuesday, but failed to break the impasse, with less than a week to go before the US Treasury says it will run out of cash to pay its bills.
Some analysts said that recent strong tax receipts meant the US could have up to two extra weeks of cushion after Aug. 2, offering a possible temporary reprieve before it could be forced to default.
Top Senate Democrats and Republicans cautiously urged compromise even as Republican House Speaker John Boehner struggled to keep his conservative troops in line behind a plan he is crafting to raise the US$14.3 trillion US debt limit.
Democratic Senate majority leader Harry Reid, however, declared Boehner’s plan “dead on arrival,” while the White House vowed to veto the measure in the unlikely event that it cleared both houses of Congress.
Boehner said his plan, which Obama opposes because it would force another debt-ceiling showdown during next year’s presidential election campaign, was the only “reasonable approach” — even as he tamped down a conservative revolt.
However, the speaker suffered a setback late in the day when the Congressional Budget Office (CBO), the non-partisan last word in polarized Washington’s spending battles, said his bill would not cut as much spending as advertised.
It was unclear how that would affect a vote on the bill, now postponed until tomorrow, amid concerns that conservatives unsatisfied with the depth of its spending cuts might deny it even a majority of Republicans.
Washington hit its debt ceiling on May 16, but has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally.
If there is no deal, the US, still recovering from the 2008 recession with unemployment hovering around 9.2 percent, could be faced with tough choices — either a debt default or reneging on obligations like government benefits for the poorest, most vulnerable Americans.
Obama has agreed in principle to deep spending cuts, including savings from social safety net programs dear to his Democrats, but Republicans egged on by the Tea Party have refused his call for tax revenue increases targeting the rich and wealthy corporations.
Reid’s plan would lift the debt ceiling by US$2.7 trillion, lasting to 2013, tied to the same amount of spending cuts over 10 years, and does not include tax increases.
Christine Lagarde, the new head of the IMF, said a US default would bring “serious” pain to the global economy and warned: “The clock is irremediably ticking, and people really have to find a solution.”
Brazilian Finance Minister Guido Mantega, whose country’s economy is booming, said the US needed to come “to its senses,” saying he believed there would be a solution, “but I am worried by the turn of events.”
While foreign stock markets have so far remained relatively immune to the troubles in Washington, US markets sank for a third straight day.
The Dow Jones Industrial Average slid 0.73 percent, the broader S&P 500 shed 0.41 percent, and the tech-heavy NASDAQ Composite slipped 0.10 percent.
In the biggest sign of market disquiet, gold climbed US$6 to above US$1,620 an ounce in New York trade, though it was still below the record of US$1,624.07.
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