GOLD reached a fresh all-time high across the pond yesterday, as the US was hit by gloomy economic news and yet another day of political feuding over the debt ceiling.
The precious metal – often seen as a safe haven for investors in times of strife and unstable currencies – reached $1,628 an ounce after government data revealed that US durable goods orders unexpectedly fell in June.
As clouds gathered, Republicans and Democrats in Washington DC continued to trade blows over their conflicting plans to cut the government’s mammoth annual deficit and raise the debt ceiling.
The US Treasury confirmed that the government will run out of cash on 2 August, rebuffing reports that tax receipts may be high enough to defer the deadline. “There is not enough money because we can no longer borrow money to pay all our bills. You’re basically running on fumes,” said White House press chief Jay Carney.
As the clock ticks down, jitters are increasingly being felt in markets throughout the world. A combination of the debt ceiling deadlock and downbeat American economic news saw equities fall off a cliff.
The Dow Jones plummeted over 50 points (0.4 per cent) in under ten minutes during afternoon trading, finally finishing the day down 1.6 per cent; the Nasdaq shed 15 points (0.5 per cent) during a sudden afternoon drop, ending the day down 2.65 per cent. The FTSE lost over 60 points in late trading as bad news trickled across from the US, before recovering slightly to close 73 points down at 5,856.58.
The UK’s biggest four banks were also hit, shedding £5.7bn in value.
Compounding the misery last night, the Federal Reserve’s Beige Book admitted that economic growth slowed in eight of its 12 districts – up from June’s Book, which detailed four districts in which growth had stalled.
Both sides of Washington’s divide frantically returned to their drawing boards yesterday after the Congressional Budget Office (CBO) revealed massive holes in both plans.
Senate Majority Leader Harry Reid, a Democrat, faced a setback on Wednesday when the CBO said that his proposal would cut $2.2 trillion from deficits, about $500bn less than Democrats had claimed.
And Republican House speaker John Boehner also rushed to revise his two-step proposal after a CBO analysis found it would cut spending by $350bn less than the $1.2 trillion over 10 years he had claimed. The White House briefed that Boehner is “wasting his time” with the plan.
Even if a deal is reached to raise the $14.3 trillion US debt ceiling, a budget plan that flinches from hefty cuts in the deficit may result in a downgrade of America’s top-notch credit rating, which could sow financial chaos worldwide.