Frozen by shutdown, US warns of 'catastrophic' default

AFP , Friday 4 Oct 2013

The US Treasury warns of 'catastrophic' consequences if there is no deal within weeks to raise the country's debt ceiling

US Shutdown
Dashaquan Armstrong, 6, left, watches as his mother Patricia Jones, 34, pays for a purchase at their neighborhood's corner store in Newark as she was denied getting a printout to prove the disability of her son Nature Harris to apply for government aid because the shutdown has closed her local social security office Oct. 3, 2013 (Photo: AP)

President Barack Obama demanded an end Thursday to a three-day government shutdown he decried as a reckless "farce," piling pressure on Republicans to climb down first on a budget impasse.

The US Treasury meanwhile warned of "catastrophic" consequences if there is no deal within weeks to raise the country's debt ceiling, and the IMF's chief said navigating a way out of that next crisis was "mission critical."

And late Thursday the White House announced that because of the shutdown Obama was scrapping plans to attend two summits next week in Asia -- an APEC summit in Indonesia and an East Asia summit in Brunei. The tour had been designed to advance a central thrust of Obama's foreign policy.

The trip had already been truncated, as Obama canceled tail-end stops in Malaysia and the Philippines.

He traveled earlier Thursday to the Washington suburbs to lambast Republican House Speaker John Boehner, who emerged from a White House meeting late on Wednesday complaining that the president would not negotiate with him.

"Take a vote, stop this farce and end this shutdown right now," Obama said during a fiery speech in the Maryland suburb of Rockville, which is home to many federal workers laid off in the shutdown.

Branding the crisis a "reckless Republican shutdown," Obama said that Boehner could reopen the government and get hundreds of thousands of people back to work "in just five minutes" by passing a temporary operating budget with no partisan strings attached.

"Speaker John Boehner won't even let the bill get a yes or no vote, because he doesn't want to anger the extremists in his party," Obama said.

The government ran short of funds on Monday, after Congress failed to pass a budget, forcing authorities to send all non-essential workers home and to close museums, monuments and national parks that are all popular with tourists.

The Democratic-led Senate had turned back repeated Republican efforts to pass a budget while defunding or delaying Obama's health care law.

The law dubbed Obamacare is a centerpiece of his political legacy and reviled by Tea Party conservatives.

The talks at the White House between Obama and congressional leaders made no progress, and there is no sign that the dispute will be solved before dragging into a second week.

The crisis rattled Wall Street on Thursday, where the Dow Jones Industrial Average dropped 136.66 points (0.90 percent) to 14,996.48, amid ongoing jitters from the shutdown and nervousness about a looming battle over Congress's responsibility to raise the $16.7 trillion US statutory borrowing limit.

If there is no resolution before October 17, the government could begin running out of money to pay its bills and an unprecedented US debt default could result.

But Republicans are again demanding concessions on Obamacare before voting to raise the debt ceiling, raising fears of unpredictable consequences, which the Treasury said in a report Thursday could plunge the United States into deep recession and rock global markets.

"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," the report 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."

International Monetary Fund chief Christine Lagarde said finding a way out of the debt limit dead end as soon as possible was "mission critical."

The New York Times reported Thursday that Boehner had privately told House Republicans that he understood the dangers of a default and was ready to pass a debt limit increase with the help of minority Democrats if necessary.

Obama has refused to negotiate with Republicans over raising the debt ceiling, saying Congress is simply authorizing borrowing to pay bills it has already run up and that offering concessions would set a poor precedent for future presidents.

In the minds of key players on Capitol Hill, the government shutdown and the debt ceiling fight have now merged into one massive political crisis.

There was some talk among Republicans that Boehner may try to craft a face-saving way out by reviving a stalled drive for a "grand bargain" on debt and spending with Obama.

But there is skepticism on the Democratic side that there is time to pull together a pact -- following repeated failed attempts in Obama's first term -- before the debt limit deadline.

Lawmakers meanwhile could pass a measure on Friday which will see federal workers receive back pay for the period when they have been off work since the shutdown.

Members of the House of Representatives and Senate filed bills that would ensure all federal employees receive retroactive pay for the duration of the work stoppage.

"They deserve their pay, not financial punishment," House Democrat James Moran said in a statement.

Short link: