US budget stand-off hits shares
Wednesday 27 July 2011
The US Congress remained dangerously split today in the face of an unprecedented American default on its debt in just six days, as Republicans clashed with Democrats - and with each other - over raising the federal cap on borrowing.
World stock markets watched nervously for a feared downgrade of the United States triple-A bond rating, shedding value across the board.
The political and fiscal turmoil embroiling Washington - brought on by the striking ascension of a block of newly elected members of the House who are beholden to the low-tax, small-government tea party wing of the Republican party - threatens to slow the US economy back into recession or worse if Congress can't agree on the normally routine issue of raising the American debt limit by Tuesday.
So far all efforts at compromise among the Republican-controlled House, the Democratic-run Senate and President Barack Obama have failed, raising the level of partisan acrimony.
House Speaker John Boehner, a Republican, was forced late Tuesday to postpone a floor vote on his plan that originally had been scheduled for Wednesday after nonpartisan congressional budget office said the proposal would cut spending less than advertised. He promised to rewrite the measure, but that will delay any vote until at least Thursday.
Boehner is struggling, unsuccessfully so far, to mend the rift between more mainstream House Republicans and the tea party block that is demanding deeper spending cuts to accompany a short-term, nearly $1 trillion (£612 billion) increase in the government's borrowing cap. Many of the increasingly powerful tea party group said they would not support their speaker's position.
"We need more drastic cuts," said Republican Rep. Jason Chaffetz. "I can't support it in its current form."
Unless he can wrestle the situation under control, Boehner risks losing leverage in his dealing with President Barack Obama and Democrats controlling the Senate.
Without an infusion of borrowed money, the government faces an unprecedented default on US loans and obligations like $23 billion worth of Social Security pension payments to retirees due on Aug. 3. Congressional telephones and email servers were jammed after Obama urged the public to contact their representatives in his Monday night address to the nation.
The threatened downgrade by credit monitoring agencies of the United States' gold-plated AAA rating absent a solution to the US debt and borrowing crisis is predicted to add at least $100 billion in interest payments to the already ballooning American debt. That would raise interest rates for Americans seeking home mortgages and auto loans and force up the cost of credit card debt. Obama has called that a silent tax increase, something the Republicans have refused to accept when Democrats have sought increased government revenue to stem the crisis.
While Boehner searched for votes in favor of his plan among House Republicans, some Americans seemed to edge closer to the notion that the Aug. 2 deadline might pass without a solution. The US stock market fell again Tuesday, although not dramatically. California planned to borrow about $5 billion from private investors as a hedge against a possible federal government default.
The White House spoke with veterans groups about what might happen to their benefits if a deal isn't reached. Obama has said he can't guarantee Social Security checks and payments to veterans and the disabled would go out on schedule.
Despite the House Speaker's efforts, Boehner's plan won no converts among some stalwart conservatives. It prompted Senate Democratic leader Harry Reid to declare that the bill now stuck in the lower chamber would fail in the Senate. The White House threatened a veto whatever happened in whatever happened in Congress and continued trying to frame the debate about how to reduce long-term deficits while raising the debt ceiling.
Boehner's standoff with his most conservative members only deepened with Tuesday's Congressional Budget Office analysis that said his bill would only cut the deficit by about $850 billion over 10 years, not the $1.2 trillion he originally promised. Even more embarrassing was a CBO finding that the measure, which would provide a $900 billion increase in the nation's borrowing cap, would generate just a $1 billion deficit cut over the coming year.
Boehner's plan would couple budget savings gleaned from 10 years of curbs on federal agency budgets with a two-track plan for increasing the government's borrowing cap by up to $2.7 trillion. The first increase of $900 billion would take effect immediately; the second increase could be awarded only after the recommendations of a special bipartisan congressional panel are enacted into law.
The Budget Office reported Wednesday morning that the plan in the Senate, from the Democrat Reid, would save $2.2 trillion over a decade, more than a rival House Republican proposal but less than promised. The federal analysis said it would save $840 billion in non-war spending by government agencies and reduce interest payments by $375 billion over a decade. The bulk of the reductions would come from projected savings of $1 trillion from winding down wars in Iraq and Afghanistan.
The White House says Boehner's measure would reopen the delicate and crucial debt discussions to unending political pressure during next year's presidential and congressional election campaigns and risk more uncertainty in the markets.
Reid promised the measure would never make it through the Democratic-controlled Senate, meaning the Obama vow to veto it superfluous.
Reid held back on forcing a vote on his competing measure, which he unveiled Monday to poor reviews from Republicans like Senate Minority Leader Mitch McConnell. Reid appears to hope that his measure, which originally promised $2.7 trillion in spending cuts and would increase the debt limit enough to keep the government afloat past the 2012 elections, could emerge as the last viable option standing and could be modified with input from Republicans.
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