US default looms with no solution in sight

October, 14th 2013

Washington: The United States moved closer to a default that could damage the economy and a partial government shutdown entered its 14th day as Senate Democratic and Republican leaders remained at odds in their last-ditch negotiations to end the fiscal crises gripping Washington.

Congress is racing against the clock, with Treasury Secretary Jack Lew warning that the US will quickly exhaust its ability to pay the bills on Thursday. Christine Lagarde, the International Monetary Fund’s managing director, spoke fearfully about the disruption and uncertainty, warning on Sunday of a “risk of tipping, yet again, into recession” after the fitful recovery from 2008.

The reaction of world markets and the Dow Jones on Monday could provide the necessary jolt to Senate leaders, who represent the last, best chance for a resolution after talks between President Barack Obama and Republican leaders of the House of Representatives collapsed. US futures were down sharply on Monday, as light trading was expected during a holiday. Earlier, trading in Asia was muted, with markets in Tokyo and Hong Kong closed for holidays.

At issue are two normally routine pieces of legislation that have become entangled in disputes over Obama’s health care overhaul and overall government spending. Congress’ failure to pass a bill temporarily funding the government led to the partial shutdown, the first in 17 years. And if Congress doesn’t approve a separate measure increasing the debt ceiling — the amount of money the government is allowed to borrow — the Obama administration says it will not be able to pay its bills, risking default.

On Sunday, Democratic Majority Leader Harry Reid and Republican Minority Leader Mitch McConnell spoke by phone but failed to agree on a deal to raise the $16.7 trillion debt limit. They also could not agree on a plan to reopen a government that shut down on October 1 after conservative Republicans aligned with the tea party movement demanded that Obama defund his three-year-old health care overhaul law.

Reid and McConnell — five-term senators hardened by several budget disputes and years of negotiations — remain at an impasse over yet another source of fiscal fighting: the automatic, across-the-board spending cuts known as sequestration that took effect earlier this year, as part of a previous high-stakes budget deal. Republicans want to keep spending at the reduced levels while Democrats are pressing for a higher amount.

Source: Gulfnews.com