The stalemate between Democrat and Republican leaders has continued over the weekend as the U.S struggles to deal with how to solve the mounting debt crisis. President Obama and Republican leader of the House, John Boehmer continues to be staunchly opposed and an announcement, which was expected last night, never came. There are now real fears across the world that the U.S' credit rating could be downgraded.
U.S. lawmakers have eight days to raise the nation's $14.29-trillion debt limit before an Aug. 2 deadline, after which administration officials say the government will no longer be able to pay all of its bills. Even if Washington reached a stopgap measure on the debt ceiling to avert default, some large investors said the greatest risk to markets was that major credit-rating firms could downgrade the nation's AAA rating. "The risk of losing our AAA rating has increased significantly," said Mohamed El-Erian, head of money management giant Pimco in Newport Beach.
The U.S. risks defaulting on $14.3 trillion debt without a deal to raise borrowing limit by 2 August. The parties have missed a self-imposed deadline to produce a debt reduction plan by the time the Asian markets opened on Sunday. However, there is a plan to outline proposals by Monday but that deadline looks unlikely after President Obama's comments yesterday. President Obama attacked the Republican speaker of the House, John Boehner for failing to return his telephone calls as claiming he had been "left at the alter" in bid to reach an agreement.
However, there is a belief that some U.S politicians have used scaremongering tactics to alert the people. That belief was backed up yesterday after the deadline to announce a deal before the Asian markets opened was missed. The global markets reacted moderately to the news that no deal had been struck despite fears that the markets could collapse. Steven Englander, head of G10 FX strategy at Citigroup said: '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.
At the White House on Sunday evening, Obama spent about an hour meeting in the Oval Office to try to hash out details of the Democratic proposal with Reid and the House Democratic leader, Nancy Pelosi. The two emerged from the meeting with nothing to say to the throngs of reporters who had been encamped there for the third consecutive weekend.
But administration and congressional officials said that during the meeting, Obama and the Democratic leaders had resolved to hold firm against any short-term agreement that did not raise the debt ceiling beyond next year's presidential elections.
The news comes as Britain's Business Secretary Vince Cable attacked what he sees as "right-wing nutters" scuppering any deal. He said: "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."
Vince Cable has also spoken of his relief that the Eurozone leaders have come to an agreement over Greek debt and has said the deal is in Britain's interests. He said on the Andrew Marr show: "It is not surprising that it isn't great because of the problems we inherited," he said, while dismissing the idea of easing the coalition's austerity measures. He said that the UK was in a "German rather than Greek" position because there was confidence in the country's finances.