World watches warily as US Congress wars

WASHINGTON — The US Congress remained deeply divided Tuesday as lawmakers grappled for a US debt deal amid mounting warnings of the dangers to the global economy if the world’s top economy defaults.

By (AFP)

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Published: Wed 27 Jul 2011, 1:07 AM

Last updated: Mon 6 Apr 2015, 10:20 PM

As the dollar slid to new lows and stock markets wobbled, the White House sought to allay global fears that the United States could default on its massive debt obligations for the first time in its history.

“We remain confident,” White House spokesman Jay Carney told reporters. “In the end we believe that Congress will behave appropriately.”

With a week to go before the United States hits an August 2 deadline to raise the $14.3 trillion debt ceiling enabling it to continue borrowing, Democrats and Republicans stuck by rival plans on a way out of the impasse.

“We have a bill that is a reasonable approach — we’ve negotiated with the Senate leadership — that really is common sense,” Republican House Speaker John Boehner insisted.

“It has real caps and a real process for cutting spending before the end of this year,” he said of his two-step plan which would allow debt increases first until February or March 2012, and then a second one later to 2013.

But in a solemn address to the nation late Monday, Democratic President Barack Obama said a two-stage debt ceiling increase was “kicking the can further down the road” and hit out at a “dangerous game” being played by rival Republicans.

“We can’t allow the American people to become collateral damage to Washington’s political warfare,” Obama said, warning of a “deep economic crisis” if the United States, still emerging from recession, defaults.

Republicans have said they will only agree to raising the debt limit if there are accompanying measures to rein in the ballooning US deficit.

Obama has agreed to a raft of deep spending cuts, but Republicans emboldened by newly elected arch-conservative Tea Party lawmakers have refused his demand for matching revenue increases to be imposed on the rich and big corporations.

Republican House Majority Leader Eric Cantor called on the party “to stop grumbling and whining and to come together as conservatives and rally behind the speaker and call the president’s bluff,” a Republican source said.

But White House spokesman Carney said the Boehner plan would not pass through the Democratic-controlled Senate and urged Congress to work on a compromise.

There are mounting global fears Congress will fail to resolve the deadlock by Tuesday, August 2.

Christine Lagarde, the new head of the International Monetary Fund, waded into the debate Tuesday urging the two sides to find a compromise.

“The clock is irremediably ticking, and people really have to find a solution,” she said in New York.

She warned a default “would be a very, very, very serious event. Not for the United States alone, but for the global economy at large.”

And Brazilian Finance Minister Guido Mantega, whose country’s economy is booming, said the United States needed to come “to its senses” saying he believed there would be a solution “but I am worried by the turn of events.”

World markets were jittery with US stocks falling, with the Dow Jones Industrial Average down 64 points (0.52 percent) at midday.

European equities also ended mixed while the dollar slid against the euro and yen, hitting an all-time low against the safe-haven Swiss franc.

But in a glimmer of hope, analysts said Tuesday that strong tax receipts meant the United States could have up to two extra weeks after August 2 before it could be forced to default.

Wrightson ICAP said they think August 15 is “the critical deadline from a cash-flow perspective.”

“It still looks as though they’ll have enough cash in August to fund operations into the second week of the month,” their chief economist Lou Crandall said.

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 by August 2, the United States, still recovering from the 2008 recession with unemployment hovering around 9.2 percent, would be faced with tough choices — either meeting its debt obligations, or reneging on government checks to the poorest, most vulnerable Americans.

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