US debt ceiling continues to trouble lawmakers

City experts warned that the lack of progress in Washington in recent days over the debt ceiling was fanning fears that the world’s biggest economy might default on some of its debt America’s debt crisis reached a critical stage on Thursday as lawmakers remained deadlocked over whether raise the US debt ceiling, and Moody’s threatened to downgrade the country’s credit rating. The dollar lost ground against most major currencies after Moody’s and Chinese ratings agency Dagong both put the US on negative watch. Reports, later denied, that President Obama had walked out of debt negotiations with top Republicans added to the drama. World stock markets suffered another bout of heavy losses when trading began on Thursday, with the FTSE 100 falling 57 points within the opening minutes to 5879. City experts warned that the lack of progress in Washington in recent days was fanning fears that the world’s biggest economy might default on some of its debts. Michael Hewson of CMC Markets called the threat of a Moody’s downgrade a “cruise missile across the bows of US politicians”. “One thing is certain it won’t take long for Fitch and S&P to follow suit if the politicians don’t come to their senses,” Hewson added. Moody’s said on Wednesday night that there was a greater risk that the US government would not agree to increase its debt ceiling above the legal limit of $14.3 trillion (£8.86tn), hit in May . Dagong swiftly followed suit, saying slow economic growth and rising debts meant the federal government’s ability to repay its debts was deteriorating. Despite mounting concern in the financial markets, America’s political leaders remain some distance apart over the issue of the debt ceiling. Little progress appeared to be made on Wednesday. Republican House majority leader Eric Cantor claimed that Obama had shoved back the table and walked out of White House talks, after Cantor refused to discuss the president’s proposal to raise taxes on wealthier Americans. “The president told me, ‘Eric, don’t call my bluff. I’m going to take this to the American people,’” Cantor said after the meeting. Democrats, though, disputed whether Obama had quit the meeting prematurely. “Left abruptly is perfectly fair,” one official told the LA Times . “But the meeting was over — in no sense did he walk out on it.” Officials have warned that, as things stand, America will run out of money to pay its bills on 2 August. Federal Reserve chairman Ben Bernanke said on Wednesday that without agreement, the US would continue to service its debts and stop benefits like Social Security payments instead. Republicans are demanding hefty spending cuts, worth around $2.4tn over the next ten years, in return for voting to raise the debt ceiling. Obama is pushing for a $4tn deficit reduction plan over the same period, with a hefty slice of increased tax revenue. Europe’s own debt crisis will be under the spotlight on Thursday as Italy holds an auction of government debt. A sale earlier this week saw the country pay its highest interest rate since the collapse of Lehman Brothers. Plans for a new austerity package, which the Italian parliament will start to approve on Thursday, may bring some calm. US economy Economics Global economy Obama administration United States Ratings agencies Graeme Wearden guardian.co.uk

Posted by on July 14, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.