Default risk 'catastrophic': Obama


The political crisis gripping Washington could trigger a "catastrophic" US debt default the Treasury has warned as America limped into day three of a government shutdown.

Despite the looming danger to the US and world economies, there was no sign that either President Barack Obama or his Republican foes were ready to give ground.

"There's one way out of this reckless and damaging Republican shutdown. Congress has to pass a budget that funds our government with no partisan strings attached," Obama declared.

"Take a vote, stop this farce and end this shutdown right now."

At midnight on Monday the US federal government ran out of funding after Congress, divided between a Republican-led lower House and Democratic Senate, failed to pass a stop gap budget measure.

Hundreds of thousands of government workers have been sent home, federal agencies have halted all but the most critical operations, parks and monuments have closed and scientific research is on hold.

Now, another threat looms, after Republicans warned that they would not approve an increase in the federal government's debt cap without receiving concessions in the budget debate.

With the government likely to exhaust its cash reserves around October 17, the Treasury said being forced into non-payment of any of its obligations - and in particular its debt - would spark turmoil.

World financial markets would be rocked and the crisis could plunge the United States into deep recession, a Treasury report said.

"In the event that a debt limit impasse were to lead to a default, it could have a catastrophic effect on not just financial markets but also on job creation, consumer spending and economic growth," it said.

"Credit markets could freeze, the value of the dollar could plummet, US interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse."

The government is operating just barely below the $US16.7 trillion ($A17.8 trillion) debt ceiling, using what it calls "extraordinary measures" since May to meet a chronic deficit of about $US60 billion a month.

Conservative Republicans want to dismantle or amend Obama's health care law as a condition for approving interim funding for the new fiscal year, which began Tuesday.

However, the president is refusing to tinker with the law, his signature health care reform widely known as "Obamacare" and there is no end to the crisis in sight.

The prospect of feuding lawmakers remaining deadlocked over whether to raise US borrowing authority has international markets and groups like the International Monetary Fund fretting.

"It is 'mission-critical' that this be resolved as soon as possible," IMF Managing Director Christine Lagarde said Thursday in a speech in Washington.

More from Business Spectator


Please login or register to post comments

Comments Policy »
""There's one way out of this reckless and damaging Republican shutdown. Congress has to pass a budget that funds our government with no partisan strings attached," Obama declared." Obamacare for thee but not for me (senate and staff are 75% subsidised into healthcare, Republicans want them to drop that). And how he calls it the "Republican Shutdown"...? republicans want to compromise on several fronts but Obama and harry reid will NOT budge one bit, not even to save a few cancer kids !!! Rhetoric coming from Obama, talking down the economy and markets is totally irresponsible, he should be calming the markets. This is my way or the highway stuff and the US people are beginning to realise it. Takes awhile for the low info crowd to catch on but slowly they are as their jobs go part time or altogether because of Obamacare.
Brazen drivel. One thing that has never interested the financial oligarchy that now runs Imperial America is "a few cancer kids". Why would a class that has since the Second World War caused the deaths of 15,000,000 people abroad through Imperial actions abroad care about health care at home? Obamacare appears – not, it should be added, by Obama's choice - to be a classic example of the costs of using public subsidy to provide profit-seeker services (allied with compulsion to provide a perverted form of the universal coverage we have for free without PHI compulsion under Medicare). In some ways "Obamacare" is an extension of the Laberal system imposed on us to subsidise a costly, limited and inefficient private health insurance system - subsidies for users plus penalties for non-users. Its worst provision is an individual "mandate" requiring those without insurance to buy the shoddy products of private insurers. That they are subsidised won’t help much, because the profit-seekers will simply increase their prices by the full amount of the subsidy, so as to take the lot while giving nothing. Unfortunately for ordinary Americans, the Mad Hatter's Tea Party wants to destroy government, so the longer the stalemate, the better. But then, here too (as with Abbott versus Julia Gillard) the victim is blamed and the villain praised.
If the Republican party has a desire to change the US Healthcare law, isn't the proper course to introduce a bill to do just that? How is it reasonable to refuse to pass the entire budget & to shutdown the government in order to leverage an outcome in one policy area?
Obama has painted himself into a corner on this issue, as he did recently with Syria. He's a 'commentator', comfortable orating after a mass shooting, but clumsy and ineffective in negotiating the minefield of US Federal politics. This situation needs real smarts and guts There is a deep and widening divide in America. They have fallen in love with welfare at every level from Wall St down - but don't like each other enough to willingly pay for it! The imbalance between our happiness to TAKE and our unwillingness to GIVE is in our DNA. The politicians knowingly buy your votes with gifts paid for by someone else. It's Democracy's curse, and will lead to the unravelling of the current "universal suffrage' version. Every welfare "right" is someone else's "responsibility", and the limiting factor in what you can GIVE is what you can TAKE. Compulsion creates huge destructive pressures and ultimately fails. If those you're trying to persuade say "NO" then the answer is NO .... OR, do what they've been doing for some time and borrow to make up the difference. And that gutless game is close to over.
Brazen drivel. As Mark's position shows, it is not about politics but about ensuring the ultimate victory of the most reactionary Rabid Right ideology. There is a deep and widening divide in America. but it is deceitful and dishonest to promote the ruling class plunder of America's people and its future as being anything but the opposite of socialism. But then, such denialists not only regard truth as whatever serves the needs of the moment, but consider themselves entitled to their own facts. Using the beginning of 2008 as a base, cumulative real GDP growth in Australia, the U.S. and the U.K. as at the end of 2011 was 30%, 15% and 12% respectively. Our economy has grown about 11% since the end of 2007 while the US has grown only by about 1.75% and many European countries are substantially smaller due to the massive recessions they have endured. Such socialism as we have deserves the credit for that. You want growth? You need egalitarianism!
Go to Cuba for the best health care in North and South America. White Americans with low educational levels have already lost an average of four years from their life expectancy between 1990 and 2008- 5% of their average lifespan. Compare it with post-Soviet Russia, where the collapse of the state-run system and an epidemic of alcoholism cut seven years from the life of the average Russian. Yet average global life expectancy across the planet rose by 7% from 1990 to 2010. On the global scale, Americans rank 36th for longevity with an average 78.3 years, almost identical to Cubans, who have one-fifth the level of income. America, citadel of capitalism and militarism, sends killers and extortionists overseas. Cuba, bastion of communism, sends health workers (in 2007, 30,000 including 19,000 doctors).
Ambrose. If Cuba and Russia are such great places, then why don't you go there ? At least their style of politics is consistent with your own!
As I pointed out above, such denialists not only regard truth as whatever serves the needs of the moment, but consider themselves entitled to their own facts. Russia ceased being state socialist in 1991, 22 years ago, but I suppose I am unreasonable in assuming that Graham had noticed. I can only hope for his sake that he pays closer attention to his investments. We are also discussing Imperial America, not Australia. Graham didn't notice that, either. We are also discussing health systems, not nations. Graham didn't notice that, either. Though many Americans would be better off fleeing to Cuba, it might have some difficulty with the numbers. Cuba includes the largest island in the Caribbean, but it is still smaller than the U.S. Incidentally, Graham, Cuba was the only nation in the world in 2006 that met the World Wide Fund for Nature's definition of sustainable development, with an ecological footprint of less than 1.8 hectares per capita and a Human Development Index of over 0.8 for 2007. Better bomb it back to the Stone Age before that poison spreads.
Ambrose, I know exactly what we are discussing. I didn't even mention most of what you have written above! I simply pointed out to you that if you think Russia or Cuba are such great places as you seem to be implying, then why don't you go and live there ? They both have left-wing political views close to yours, so you should be quite at home in either country.
Then you'll be agreeing with the criticisms that I made. Since when, pray tell, is a reply limited to whatever may be interpreted as the boundary of the post? Perhaps in addition to your other blanks, you are confusing a discussion with a cross-examination?
Ambrose has said it quite succinctly if Cuba and Russia are such great places to live why don't you go there? The reason is that you enjoy the spoils available in countries such as the USA and Australia and want more without having to pay for it. It is called free loading. If Obama is really serious about disrupting the worlds economy through not being able to have his legislation passed then he is no better than you. His idealism has been on show for some time and Americans are fed up with his rhetoric and failures. He is another non stop talking Rudd who has no leadership ability or intelligence. Just idealism and waste.
Graeme, Did you meant to write the following ? : "**Graham** has said it quite succinctly if Cuba and Russia are such great places to live why don't you go there?"
I could have suggested that if America is such great a place to live why doesn't Graham go there?
If this is genuine and traded in the banking system the British government missed out in collecting MTN tax from HSBC, Barclays, RBC, and JP Morgan. If no then could be a form of AML which can be devastating to a nation's financial and economic stability. It is worth investigating. If these instruments are fake and traded in the banking system then its worth nothing. Potential impact to managed funds and treasury.!
It looks like more Americans are blaming the Republicans (44%) than the Democrats (35%) for the shutdown, according to a recent CBS News poll. People also blamed the last shutdown (1995) on the Republicans (51%) rather than the Democrats (28%). In a poll last week, the Republicans had their lowest approval rating ever, with 17% of people approving of the job the Republicans are doing and 74% disapproving. Holding out on the shutdown won’t do their cause any good. I think the Republicans might need to wake up to themselves. The US economy is slowly getting itself out of the mire and now this. The damage to the US economy was basically done under the Republicans watch and the Democrats have had to pick up the pieces and take the blame. US Government spending has fallen steadily since 2009 and 2010, from about $3.1 trillion a quarter to about $2.9 trillion in 2013. The budget deficit remains large but has fallen from about 12% of GDP in 2009 to 8% in 2012. Growth in government debt to GDP has slowed right down in the last couple of years. The recovery will take a long time but won’t be helped by the Republicans.