Debt row in US sees stocks take a tumble
Published 28/07/2011 | 08:00
Stock markets around the world slumped yesterday as fears increased that a stand-off between the two main US political parties could bring down the region's economy.
The US Congress has remained dangerously split in the face of an unprecedented American default on its debt in just five days as Republicans clashed with Democrats - and with each other - over raising the federal cap on borrowing.
World stock markets watched nervously for a feared downgrade of the United States triple-A bond rating, shedding value across the board.
The political and fiscal turmoil embroiling Washington - brought on by the striking ascension of a block of newly-elected members of the House who are beholden to the low tax, small-government tea party wing of the Republican party - threatens to put the US economy back into recession or worse if Congress cannot agree on the normally routine issue of raising the American debt limit by Tuesday.
So far all efforts at compromise among the Republican-controlled House, the Democratic-run Senate and President Barack Obama have failed, raising the level of partisan acrimony.
House Speaker John Boehner, a Republican, was forced to postpone a floor vote on his plan after the non-partisan Congressional Budget Office said the proposal would cut spending less than advertised.
Mr Boehner is struggling to mend the rift between more mainstream House Republicans and the tea party block that is demanding deeper spending cuts to accompany a short-term, nearly $1trillion increase in the Government's borrowing cap.
Many of the increasingly powerful tea party group said they would not support their speaker's position.
Unless he can bring the situation under control, Mr Boehner risks losing leverage in his dealing with President Obama and Democrats controlling the Senate.
Without an infusion of borrowed money, the government faces an unprecedented default on US loans and obligations.
The threatened downgrade by credit monitoring agencies of the United States' gold-plated AAA rating absent a solution to the US debt and borrowing crisis is predicted to add hugely to interest payments to the already ballooning American debt.
That would raise interest rates for Americans seeking home mortgages and loans and force up the cost of credit card debt.
While Mr Boehner searched for votes in favour of his proposal among House Republicans, some Americans seemed to edge closer to the conclusion that the August 2 deadline might pass without a solution.