Budget rift pushes US to brink of debt default
WASHINGTON—A dramatic day of political breakdowns thrust the United States dangerously close Tuesday to a debt default deadline and left the global economy exposed to unpredictable knock-on turmoil.
Just 31 hours before the US government begins to run short of money to pay its bills, there was no clear way out of a stalemate that has called the dollar’s status as the world’s reserve currency into question.
Major world powers looked on in dismay at the brinkmanship and political recriminations in Washington, fearing reverberations that could wreak havoc in their own sometimes weakened economies.
“We’re far from a deal at this point,” White House spokesman Jay Carney admitted on Tuesday.
If Congress does not raise the government’s current $16.7 trillion debt ceiling by October 17, the Treasury will have too little money coming in via tax receipts to meet all of its obligations.
It would be forced to choose, for example, between honoring bond payments and shelling out Social Security checks to older citizens.
Amid rising anxiety on the markets, the financial rating agency Fitch put the United States on warning for a downgrade from its top grade AAA spot.
Despite the impasse in the US capital, President Barack Obama said he still expected the issue would be resolved in the end.
“My expectation is that this gets solved, but we don’t have a lot of time,” he told an ABC television affiliate in New York.
“What I’m suggesting to the congressional caucus is to avoid any posturing … do what’s right, open the government and make sure we pay our bills.”
Overnight hopes for an agreement between Senate Republicans and Democrats on raising US borrowing faded when conservative Republicans in the House of Representatives seized back the initiative in the morning.
The party made several new attempts to constrain Obama’s signature health care law—defying White House demands for a bill lifting the debt ceiling without conditions.
The latest Republican measure would raise borrowing authority until February 7 and reopen the government until December 15.
In turn, the bill demands an end to health care subsidies for members of Congress, aides and White House and cabinet officials and takes away the Treasury’s power to take special measures to manage US debt obligations.
Senate talks were meanwhile on hold pending developments in the House—effectively leaving efforts to end the crisis in limbo.
“It’s all fallen apart,” said Democratic Senator Dianne Feinstein. “We are stunned by the reaction in the House.”
Senate Democratic leader Harry Reid furiously accused Republican House Speaker John Boehner of seeking to save his own political skin at the expense of the United States.
“Let’s be clear: the House legislation will not pass the Senate,” Reid said. “I am very disappointed with John Boehner, who would once again try to preserve his role at the expense of the country.”
Boehner was left once again with the unenviable choice that has come to define his speakership in Washington’s divided government.
Does he stick with the Tea Party faction of his party, and possibly save his job but risk culpability in sending the US economy into a first default of modern times?
Or does he try to pass a compromise plan acceptable to Senate Democrats and Obama, with the help of minority Democratic votes—a scenario that could fritter away his party power base and possibly cost him his job?
A Boehner ally, Congressman Devin Nunes, told CNN there would be a House vote on the latest Republican plan on Tuesday evening.
Democratic House minority leader Nancy Pelosi said at the White House after a meeting with Obama that the plan was a “vote for default” and would get no Democratic support.
But she said she was optimistic that “sanity” would prevail even if the latest Republican bill was passed, predicting it would be sent back to the House by the Senate.
Republican Senator John McCain, who has been critical of his own party’s conduct in seeking to use the debt limit as leverage, turned fire on the White House and Democrats, calling on them to negotiate an exit strategy with Boehner.
“It’s piling on and it’s not right,” McCain said.
China and Japan, which between them hold $2.4 trillion in US Treasuries, are already alarmed at the implications of the crisis.
Japan’s Finance Minister Taro Aso said many US politicians “don’t seem to understand well the magnitude of the international impact this problem could have.”
And China’s Vice Finance Minister Zhu Guangyao, in Beijing, said: “We demand that the US side, as the issuing country of the major reserve currency… should undertake its due responsibility.”
Investors endured a roller coaster day. US stock markets closed down after a day of wild fluctuations, with the Dow Jones Industrial Average shedding 133.25 points (0.87 percent) to 15,168.01.
The broader S&P 500 fell 12.08 (0.71 percent) to 1,698.06, and the Nasdaq Composite lost 21.26 (0.56 percent) at 3,794.01.
The State Department, meanwhile, warned that dysfunction in Washington undermined America’s image abroad.—Stephen Collinson, Michael Mathes