A sharply divided U.S. Congress pursued rival budget plans on Monday that appeared unlikely to win broad support, pushing the United States closer to a ratings downgrade and debt default that would send shockwaves through global markets.
With an Aug. 2 deadline little more than a week away, lawmakers have steadfastly refused to compromise and talks once again collapsed in acrimony at the weekend. Democrats and Republicans split into two camps to work on their own proposals. Financial markets were uneasy in Asia and Europe on Monday about the prospect of a first-ever U.S. debt default, which Fed Chairman Ben Bernanke has said would be a “calamitous outcome” for the U.S. and the global economy.
But there was no panic selling that some politicians in Washington had feared after the weekend talks broke down, although that day could be drawing closer said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey. “There’s an old saying that things don’t matter until the day they matter; we’re getting close to the day when it will matter,” Krosby said.
After weeks of rancorous talks, finger-pointing and political point-scoring, both sides appeared still far apart on a deal to reduce the budget deficit, which would clear the way for Congress to raise its $14.3 trillion borrowing limit.
President Barack Obama and congressional leaders have tried to reassure global markets that the country will be able to service its debt and meet other obligations after Aug. 2, when the Treasury Department says the United States will run out of money to pay its bills.
Faced with the prospect of defaulting on debt and the country losing its AAA credit rating, the highest possible, lawmakers set a Monday deadline to show markets a plan. Germany added its voice to those expecting U.S. lawmakers to reach a compromise, although elsewhere there were signs of frustration. British Business Secretary Vince Cable told BBC television on Sunday that “right-wing nutters” in Congress were holding up the talks. China, the biggest U.S. foreign creditor with some $1.16 trillion invested in U.S. Treasuries as of May, has regularly pressed Washington to get its fiscal house in order.
RATINGS: Talks between Democrats and Republicans in Congress fell apart once again after House Speaker John Boehner acrimoniously broke off talks with Obama. Now the Republican-controlled House and the Democratic-controlled Senate appear to be heading for a showdown as their leaders develop competing legislation to resolve the crisis.
