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Saturday, October 16, 2021

US shutdown: Debt default imminent as frantic political attempts fail

Failed talks have prompted a rating agency to warn a possible downgrade in creditworthiness.

Written by PTI | Washington |
October 16, 2013 5:08:58 pm

The US was on Wednesday pushed to the brink of an unprecedented debt default as talks to end two- week-long shutdown collapsed,prompting a top ratings firm to warn of a possible downgrade in the country’s creditworthiness which will have a cascading impact on the global economy.

Frantic attempts to persuade House Reblicans to lift the federal debt limit collapsed last night,leaving Washington careering toward a critical deadline of October 17 to raise the country’s debt ceiling.

John Boehner,the House speaker,failed to persuade elements within his own Republican caucus to back a bill designed to placate conservatives.

Boehner’s bill,which was drafted after Tea Party-backed members of the House voiced their opposition to a deal forged between Democrats and Republicans in the Senate,had been expected to be put to a vote last night.

But it was pulled at the last minute after the House leadership realised that the bill,opposed by Democrats,did not even have the support of sufficient Republicans to pass.

The news capped a day of confusion and setbacks on Capitol Hill that left Congress back where it had started.

Amid the congressional disarray,rating agency Fitch has put the US on warning for a downgrade. It placed the nation’s top-grade AAA rating on a “negative watch”,citing the possibility the Treasury could default on its obligations after October 17 if the ceiling is not raised.

“The US authorities have not raised the federal debt ceiling in a timely manner,” Fitch said on Wednesday.

“Although Fitch continues to believe that the debt ceiling will be raised soon,the political brinkmanship and reduced financing flexibility could increase the risk of a US default.”

The US must raise its USD 16.7 trillion debt limit by Thursday or risk default.

Politicians,bankers and economists have warned of global economic consequences unless an agreement can be reached.

Hardline conservatives triggered the budget warfare 16 days ago,forcing the first government shutdown in 17 years by demanding that President Barack Obama gut his signature healthcare overhaul.

Senate Democratic leader Harry Reid and his Republican counterpart,Mitch McConnell,are expected to brief their colleagues later today.

But even if a compromise can overcome procedural hurdles,it remains unclear whether it could muster enough votes in the Republican-led House to pass before the October 17 deadline.

The Senate’s negotiations were initially put on hold yesterday to give House Republicans a chance to come up with a deal.

But the lower chamber’s efforts ended in chaos after two proposals floated in the space of a few hours were torpedoed from right and left,forcing the leadership to shelve plans for a vote.

White House Press Secretary Jay Carney said the US is the largest economy in the world and it has a lot of obligations which exceeds its income.

“And that is why we have to ensure that Treasury is able to borrow in order to pay our bills,” he said while justifying the massive borrowing by the US Government.

House Democratic leader Nancy Pelosi told reporters,after a group of Democratic lawmakers met President Barack Obama at the White House,that they are “optimistic that there is a path to lift the debt ceiling in time”.

The government shutdown,now in its third week,has “badly dented” globally the image and prestige of the United States as the world’s pre-eminent economic power,eminent experts and media outlets have said.

Noting that as the world’s pre-eminent economic power,the US has been the cornerstone of the global financial system since World War II,The Wall Street Journal said that now,observers say that prestige may have been badly dented by Washington’s latest display of fiscal dysfunction,limiting the US’s ability to get things done abroad.

Laurence Fink,chief executive of the world’s largest asset manager,BlackRock,said he detected “a pronounced sadness from our trading partners and our friends” as he tried to explain the fiscal impasse during his recent travels abroad.

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