US debt crisis: hardline revolt puts more pressure on Republican leader

• Default could cost America triple-A credit rating • Barack Obama warns of economic ‘Armageddon’ • Threat grows of government shutdown next week Congress remained deadlocked over the debt crisis on Wednesday, with House Republicans unable to muster the votes needed to pass emergency legislation before next week’s deadline. Faced with a revolt by hardline members of his own party, House leader John Boehner was having to hastily rewrite a bill he proposed earlier in the week to cut $3 trillion (£1.83tn) in federal government spending. Boehner hopes to put his new bill to the vote on Thursday after being forced to cancel a planned vote because of lack of numbers. Although the Treasury may be able to conjure up a short-term solution to prevent default on Tuesday, the row and the failure of America to tackle its burgeoning debt problem could now lose the US its triple-A credit rating, a move that could have damaging consequences for the US economy and beyond. The country’s national debt reached its congressionally set $14.3tn ceiling on 16 May and Washington has since been forced to use spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally, but it can only do so until 2 August. Without agreement, the US will probably become unable to pay all its bills some time the following week. Federal spending would have to be reduced by as much as 44% for the remainder of the month, forcing the treasury to decide whether to suspend social security benefits, defence spending or stop paying government employees. Finance and business leaders have warned that failure to raise the US debt ceiling by then would send shockwaves through the fragile world economy, while President Barack Obama has predicted that a default would trigger economic “Armageddon”. Boehner needs to secure 217 votes to get his bill through, a job made more difficult by a report from the Congressional Budget Office (CBO) saying that the Republican leader’s bill would only reduce the deficit initially by $850bn, not the $1.2tn that Boehner had claimed. Hardline conservatives are demanding still bigger spending cuts. However, even if the bill were to be passed, the Democratic leader in the Senate, Harry Reid, promised that the Senate would kill it and Obama has said that he would veto it. A solution is most likely to come from negotiations between Reid and the Republican leader in the Senate, Mitch McConnell. Reid is proposing raising the debt ceiling from $14.3tn until after the 2012 elections, in return for immediate spending cuts of $1.7tn. But the CBO has also challenged Reid’s budget cuts. The office concluded that his plan would deliver $500bn less in deficit reduction than the $2.7tn Democratic lawmakers had said it would save over 10

Posted by on July 27, 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.