THE US INCHES closer to a once-unthinkable default as Tuesday’s debt ceiling deadline looms and Republicans and Democrats fail once more to secure a deal.
An 11th hour solution is the only way that America can now avoid such a calamitous default, which could have the potential to spark another global financial crisis.
Last night, the Democrat-led Senate quashed a Republican bill that had been squeezed through the GOP-controlled House.
The bill, proposed by House Speaker John Boehner, included $900bn in spending cuts. Although it would also raise the debt ceiling, it states that another vote on the borrowing limit would need to be taken in mid-2012.
It won the House vote by a small margin of 218 votes to 210 but was rejected by both the White House and the Senate.
Democrat and Senate leader Harry Reid is now looking for a vote on his alternative bill to be held on Sunday.
It is still wholly unclear what may happen over the weekend as both parties continue discussions with the White House in Washington.
Speaking to the US public in a live televised address last night – his second in a week on the debt issue – President Barack Obama warned that the two parties were running out of time.
He explained to the American people that if the debt ceiling, which currently stands at US$14.3 trillion is not raised by Tuesday, the country will not have enough money to pay its bills. This would include Social Security checks, veterans’ benefits and government contracts that have been signed with thousands of businesses, added Obama.
The US President also made clear that the US could lose its top triple-A credit rating if this happens.
Keep in mind, if we don’t do that, if we don’t come to an agreement, we could lose our country’s AAA credit rating, not because we didn’t have the capacity to pay our bills — we do — but because we didn’t have a AAA political system to match our AAA credit rating.
Using the power of the public address, Obama called on the ordinary people of America to get in contact with members of Congress.
Make a phone call. Send an email. Tweet. Keep the pressure on Washington, and we can get past this.
Republicans and Democrats are not fighting over the debt ceiling issue itself – they both agree that it needs to be raised. The two parties also agree on how much the budget deficit should be cut by. The argument centres on how to reduce the deficit by up to $4 trillion. Republicans want to cut public spending, which would see funding for certain Government programmes slashed.
Democrats want to protect these programmes, which help the less wealthy in America, and instead raise more money by increasing taxes for those who can afford it.
Collateral damage
The New York Times reports that the whole world is on tenterhooks this morning as other large economies fear collateral damage from a US default.
The main concern in Europe is that the dollar could weaken further if a deal is not reached by Tuesday. This would push up the euro and put more pressure on the eurozone as it tries to rectify its own debt crisis.
Popularity contest
As the 2012 presidential election remains in the minds of both parties, the debt ceiling issue is not doing potential Republican candidates or the incumbent any favours.
A Gallup poll this morning showed that Obama’s approval rating has dipped to an all-time low of 40 per cent. This rating has fallen 9 percentage points since the first week in June.
Watch Obama’s speech to the nation here:
- Additional reporting by AP
To embed this post, copy the code below on your site
have your say