July 14, 2011
America's debt crisis reached a critical stage on Thursday as lawmakers remained deadlocked over whether to 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. European government bonds were also under pressure after an auction of Italian long-term bonds saw buyers demand much higher interest rates - a sign of the tensions in Europe's own debt crisis.
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.
JP Morgan chief executive Jamie Dimon said it was "imperative" that the US debt ceiling was raised, and that the US showed fiscal discipline.
Republicans are demanding hefty spending cuts, worth about $2.4tn over the next 10 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.
http://www.guardian.co.uk/business/2...wngrade-threat
(
From the Guardian (UK) - the comments below the article - if you use the link, are well worth reading as well.)
America's debt crisis reached a critical stage on Thursday as lawmakers remained deadlocked over whether to 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. European government bonds were also under pressure after an auction of Italian long-term bonds saw buyers demand much higher interest rates - a sign of the tensions in Europe's own debt crisis.
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.
JP Morgan chief executive Jamie Dimon said it was "imperative" that the US debt ceiling was raised, and that the US showed fiscal discipline.
Republicans are demanding hefty spending cuts, worth about $2.4tn over the next 10 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.
http://www.guardian.co.uk/business/2...wngrade-threat
(
From the Guardian (UK) - the comments below the article - if you use the link, are well worth reading as well.)
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