Both US President Barack Obama and the Republican leader in Congress John Boehner raised the spectre of a market crash today if the political battle to raise America’s $14.3-trillion debt ceiling is not settled.
The crisis sharpened over the weekend after long running talks between Obama and House Speaker Boehner collapsed in acrimony late on Friday.
A furious Obama warned then: ‘It’s very important that the leadership (in Congress) understands that Wall Street will be opening on Monday, and we’d better have some answers.’
Obama and top US lawmakers held further day-long crisis talks on Saturday but failed to find a breakthrough.
Democratic Senate Majority Leader Harry Reid accused Republicans of bringing the US to ‘the brink of default’ by failing to reach a deal.
Reid said: ‘Anything less than that will fail to provide the certainty that the markets, and the world, are looking for, risking an immediate downgrade of America’s credit rating. Now is the time for cooperation.’
Hours earlier, Boehner told members of his majority on a conference call that he hoped for a deal within 24 hours to soothe investor worries, notably in Asia.
He promised fellow Republicans ‘real cuts’ in spending to put Washington on a ‘sustainable’ path, adding that the hard-fought negotiations centred on a two-step process to cut $3-4 trillion in spending over ten years.
Obama has called for a single tax increase for the wealthy and big business to last through the 2012 election, when he seeks a second term.
Republicans have rejected his call for raising taxes on the rich and wealthy corporations.
Congressional Democrat leader Nancy Pelosi accused Republicans of looking ‘to walk away from 98 per cent of the American people to protect the assets of the top two per cent of the wealthiest people in our country.’
‘Congress should refrain from playing reckless political games with our economy. Instead, it should be responsible and do its job, avoiding default and cutting the deficit,’ Obama spokesman Jay Carney said after the White House talks.
• UK Business Secretary Vince Cable yesterday accused US Republican politicians of risking a US default, calling them ‘nutters’.
Cable told the Andrew Marr Show: ‘The irony of the situation at the moment, with markets opening tomorrow morning, is that the biggest threat to the world financial system comes from a few right-wing nutters in the American congress rather than the eurozone.’
Asked about economic growth in the UK, Cable conceded: ‘There is a genuine problem with demand, with consumer demand.
‘And again it’s not surprising. There have been big shocks; world commodity prices going up have had a big effect on consumer confidence here.
‘But the Bank of England, which has played an absolutely key role in keeping interest rates down and if necessary using the expansion of money supply to deal with this problem, is in reserve if weak demand continues.’
He was asked if he thought ‘a little bit more printing of money could be one of the solutions to tide us over this lack of growth?’
Cable replied that ‘if there is a sustained period of weakness of demand, the right approach to that is not for the government to relax its fiscal discipline, we have to keep that going.
‘But it is about the Bank of England pursuing policies of low interest rates, which also help keep our exchange rate down and therefore help exports, but also using expansion of quantitative easing – perhaps in more imaginative ways, not just acquiring government securities.’