Debt deadlock

 
Julian Harris
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Washington fails to hammer out a deal on US budget

AMERICA’S ticking time bomb grew even louder last night, after bickering politicians failed to deliver a plan to cut the country’s annual deficit and raise the legal debt ceiling.

The White House had targeted the opening of Asian markets this morning as a deadline to announce progress in the talks, yet escalating feuds between top officials thwarted any hope of a market-calming resolution.

Japan’s Nikkei index lost 0.7 per cent to 10,064.1 in early trading this morning as markets reacted to the deadlock. The greenback also eased amid the uncertainty, with the euro hitting $1.4396 from $1.4353 in late trade on Friday. And gold futures for August hit a record high last night as talks stalled, rising more than one per cent to hit $1,621 an ounce.

Lawmakers are running out of time to raise the ceiling before the government becomes unable to service its debt on 2 August – next Tuesday. Both the House of Representatives and the Senate require several days to table legislation before voting, analysts have said.

Commenting on problems across the pond, British business secretary Vince Cable yesterday blamed “a few right-wing nutters” for creating “the biggest threat to the global financial system”.

Some Republicans are holding out for stronger spending cuts in lieu of tax rises, in negotiations to reduce the mammoth $1.5 trillion (£919bn) annual government deficit.

Diminishing time has created another point of contention between Republicans and Democrats. With the clock ticking down, Republicans are pushing a “two-step” agreement that would see a short-term agreement put in place to meet the 2 August deadline, with talks resuming on a longer-term plan. A Republican aide said top level party members will meet this evening to thrash out their next move. President Barack Obama opposes a short-term plan, insisting that a deal must provide the US government with enough financial leeway to allow it to continue servicing debts beyond the next Presidential election in November 2012.

“After over six months of conversations with the President about doing a big deal, it’s pretty clear to me that they’re not willing to do it – that the next election matters more than doing what’s right for the country,” said Republican House Speaker John Boehner.

Obama’s treasury secretary Geithner remained upbeat despite the ongoing problems last night, insisting a default would not happen and that the economy was on the up.