Obama, Congress fail to break debt deadlock

WASHINGTON: U.S. lawmakers failed to achieve a budget breakthrough
and instead worked on rival plans on Sunday in an impasse that
heightened prospects for a catastrophic U.S. debt fault.
With time running out, Republican and Democratic lawmakers split into
opposite camps and held talks among themselves. There were no signs of a
deal emerging to head off a default in nine days that could trigger
global economic calamity and downgrade America's Triple-A credit rating.
Lawmakers missed a self-imposed deadline of producing a
deficit-reduction deal by the time Asian markets opened on Sunday, but
planned to outline a proposal on Monday. A deficit deal is needed to
permit a vote to increase the $14.3 trillion U.S. debt ceiling by Aug.
2.
President Barack Obama heard details of a Senate Democratic plan that
would rely on spending cuts, not new tax revenue, which would violate
one of his key demands.
Edgy markets responded to the stalemate, but not in dramatic fashion.
Although some had predicted global markets would fall apart without a
deal before the Asian markets opened on Sunday evening, the reaction
was relatively modest as investors pulled out of riskier investments
like stocks and headed for safe haven assets like gold, pushing the
metal to a new record.
U.S. stock futures fell, signaling a poor open for U.S. markets and
showing that investors were increasingly worried about the failure of
legislators to coalesce around one approach. Early currency trading
suggested a move away from the U.S. dollar, with the biggest drop in the
greenback coming against the Swiss franc.
"The fact that they seem to be jumping from one type of proposal to
another and not converging on anything is beginning to worry markets,"
said Steven Englander, head of G10 FX strategy at Citigroup.
"I also think damage is being done by setting deadlines that aren't going to be met," he said.
The battle is over how deeply to cut government spending on social
programs and whether to increase taxes, reflecting the challenges of
divided government in an age when Republicans and Democrats are beholden
to their right and left bases of support.
Democrats want to ease the pain of spending cuts by increasing taxes on the wealthy, a prospect Republicans oppose.
"This is a like a long labor, with the dad in the waiting room,
waiting to see if it's a boy or a girl and the doctor's coming out and
saying 'I can't tell you yet,'" Republican Representative Jack Kingston
told Reuters. – Reuters