WASHINGTON, Oct 16 – The United States Wednesday stood hours from a fateful fiscal deadline, with a chaotic political standoff threatening to trigger a debt default and rock the global economy.
Hopes that Congress would agree to raise the government’s borrowing authority as required by midnight (0400 Thursday) rested with last gasp talks in the Senate with America’s top notch credit rating on the line.
Any deal though would have to make it through the Republican led House of Representatives, where conservative Tea Party lawmakers have thwarted previous compromise efforts in a bid to undermine Democratic President Barack Obama.
If Congress fails to raise the $16.7 trillion debt ceiling in time, the US Treasury would begin to run out of money to meet all US obligations and slip towards a historic default.
Such a scenario could badly damage the US recovery, saddle American consumers with higher interest payments and send economic shockwaves into fragile global economies.
In Asia, stocks fell early Wednesday as investors kept an eye on the American impasse. In Tokyo, the benchmark Nikkei 225 index gave up early gains to slip 0.16 percent, 23.44 points, to 14,418.10. In Hong Kong stocks eased 0.39 percent by the lunchtime break.
Hopes for an exit strategy rest with talks between Senate majority leader Harry Reid and Republican minority leader Mitch McConnell.
The two old foes saddled up after maneuvering by the House Tuesday dissolved in chaos. Republican Speaker John Boehner proved unable to win support from his caucus and unwilling to use minority Democratic votes to raise the debt ceiling and re-open the US government after a two week shutdown.
In the face of the deadline, the US political system, divided between Obama’s Democrats and Republicans who run the House, has virtually ground to a halt.
Major world powers have been left looking on in dismay at the brinkmanship in Washington, unable to do anything to protect their own economic interests, with many deeply invested in US Treasuries hitherto seen as one of the safest global safe havens.
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 deepening impasse, 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.”
What was essentially a wasted day, with precious few hours to spare Tuesday, unfolded as House Republicans tried to extend US borrowing authority until February 7 and re-open the government until December 15.
Several draft bills would have constrained aspects of Obama’s signature health care law and in effect stood no chance to pass the Democratic led Senate.
But Boehner used the measures to try to corral the Tea Party faction and to pressure the Senate but in the end was unable to amass sufficient Republican votes to even put the measures on the floor.
Senate talks, which had been on hold all day pending developments in the House, were quickly resumed on Tuesday evening.
Leadership aides on both sides said they were “optimistic” that an agreement was in reach.
“We’re making very, very good progress, we’re not there yet, but we’re getting real close,” said Democratic Senator Chuck Schumer.
“I think the markets should feel pretty good about what’s going on here tonight.”
Republican Representative Charlie Dent of Pennsylvania told CNN: “I believe that John Boehner will likely be in a position where he will have to essentially pass the bill that is negotiated between senators McConnell and Reid, and I believe that the House will first pass it and send it to the Senate.”