Default looms as US government shutdown continues

The United States moved closer to a default that could seriously harm the economy and a partial government shutdown entered its third week

Alex Wong/Getty Images U.S. President Barack Obama
U.S. President Barack Obama

The United States moved closer to a default that could seriously harm the economy and a partial government shutdown entered its third week as Senate Democratic and Republican leaders remained at odds over spending in their last-ditch negotiations to end the crises gripping the nation.

Democratic Majority Leader Harry Reid and Republican Minority Leader Mitch McConnell spoke by phone on Sunday but failed to agree on a deal to raise the nation’s borrowing authority above the 16.7 trillion dollar debt limit. Separately, they also could not agree on a plan to reopen a government still shuttered on its 14th day. Congress is racing against the clock, with Treasury Secretary Jack Lew warning that the US will quickly exhaust its ability to pay the bills on Thursday.

The reaction of world markets and the Dow Jones could provide the necessary jolt to Senate leaders, who represent the last, best chance for a resolution after talks between President Barack Obama and House Republican leaders collapsed. The shutdown has forced 350,000 federal workers into unpaid leave, impeded various government services, put continued operations of the federal courts in doubt and stopped the federal tax agency from processing tax refunds. Several parks and monuments remain closed, drawing a protest at the National World War Two Memorial on Sunday that included conservative tea party-backed politicians who had unsuccessfully demanded defunding of Mr Obama’s three-year-old health care law in exchange for keeping the government open.

Economists see greater financial danger from an historical default. Christine Lagarde, the International Monetary Fund’s managing director, spoke fearfully about the disruption and uncertainty, warning on Sunday of a “risk of tipping, yet again, into recession” after the fitful recovery from 2008.

Mr Reid and Mr McConnell - five-term senators hardened by budget disputes and years of negotiations - are at an impasse over the automatic, across-the-board spending cuts known as sequestration and whether to undo or change them as part of a budget deal. Republicans want to keep the spending at the deficit-cutting level of the 2011 budget law while Democrats are pressing for a higher amount.

“I’m optimistic about the prospects for a positive conclusion to the issues before this country today,” Mr Reid said as the Senate wrapped up a rare Sunday session.

Mr McConnell insisted a solution was readily available as he embraced the proposal from a bipartisan group of 12 senators, led by Republican Senator Susan Collins and Democratic Senator Joe Manchin that would reopen the government and fund it at current levels for six months while raising the debt limit through January 31. It would also give agencies greater flexibility in dealing with the automatic budget cuts, delay the medical device tax for two years and establish income verification for individuals receiving subsidies to buy health insurance.

“It’s time for Democrat leaders to take ‘yes’ for an answer,” Mr McConnell said in a statement.

But six Democrats in the group and a spokesman for Ms Collins said late on Sunday that while negotiations continued this weekend, there was no agreement. Politically, Republicans are reeling, bearing a substantial amount of the blame.


David Whetstone
Culture Editor
Graeme Whitfield
Business Editor
Mark Douglas
Newcastle United Editor
Stuart Rayner
Sports Writer