the Guardian: America's debt crisis moved closer to disaster

There are various stories going round at the moment, including one that says that Wall Street has been warned that despite everything the bills will get paid in time.

Whether this is true or not the stock markets have not racted with panic yet.  Perhaps more importantly the Chinese have not dumped their dollars yet.

Michael Ruppert’s opinion is that “If you see the drama continue right up to the deadline with no moves at all from China to protect their position in Treasuries (by dumping them) one might conclude that a back door signal has been given to Beijing that default has been kicked a little farther down the road.”

Otherwise we should perhaps be looking for China to start dumping their dollar holdings at the last minute if they sense that these might become worthless.

In addition, as already reported there are reasons to suspect that the key date is not the 2nd August, but the 10th (or some other date later in August)

US debt crisis talks reach an impasse

IMF chief warns of serious consequences for world economy as Obama and Republicans fail to agree on approach

the Guardian, Tuesday, 26 July, 2011

America's debt crisis has moved closer to disaster as the battle between Barack Obama and the Republicans intensified and talks appeared to have reached a stalemate.

With no compromise in sight over a deal to increase the US's borrowing limit ahead of an 2 August deadline, the IMF chief, Christine Lagarde, warned the political impasse in Washington would have serious consequences for the world economy. "The clock is ticking and clearly the issue needs to be resolved immediately," Lagarde told the Council on Foreign Relations thinktank.

Her warning came after the row over the national debt reached a new level on Monday night, when Obama and the Republican House speaker, John Boehner, addressed the nation about the looming debt crisis.

With a week left until the deadline that could see the US default on its debt for the first time in its history, Obama expressed dismay over the standoff: "It is a dangerous game we've never played before, and we can't afford to play it now. Not when the jobs and livelihoods of so many families are at stake. We can't allow the American people to become collateral damage to Washington's political warfare."

A week ago the two men were in private negotiations on what Obama called "a balanced approach" and he said the only reason it isn't "on its way to becoming law right now is because a significant number of Republicans in Congress are insisting on a different approach, a cuts-only approach, an approach that doesn't ask the wealthiest Americans or biggest corporations to contribute anything at all".

He rejected a Republican proposal for a stop-gap deal, saying it would only mean them returning again next year to use the same tactics to seek more cutbacks.

Boehner went live on television within minutes of the president to deliver his own statement: "The sad truth is that the president wanted a blank cheque six months ago, and he wants a blank cheque today. That is just not going to happen." He said he had attempted to work with the president but Obama "would not take 'yes' for an answer".

Financial markets have reacted nervously to the debt crisis but economists said they still appeared to be betting that the fight was largely political posturing and likely to be resolved.

If the two sides cannot reach a solution by next week, the government will run out of cash and have to stop paying many of its bills. Gus Faucher, director of macroeconomics at Moody's Analytics, said the consequences would be dire. "This could push us back into recession," he said. "It would be a stupid, self-inflicted wound."

Ken Goldstein, economist at the Conference Board, said stock markets seemed to think a stop-gap solution was inevitable: "Asking them to do more than bungle through is asking them to do more than they are capable of." He said a more long-lasting solution would have to wait until after the election in 2012.

Some political pundits believe Tuesday's deadline may pass without a resolution. Joshua Trevino, author of the conservative Redstate blog, said many Republicans were convinced it was better in the long-term to block any rise in the US debt and Democrats were convinced Republicans were damaging their political chances with their refusal to compromise. "At the moment each side does not see sufficient downside in default," he said.

Both the Democrats and Republicans say it is unthinkable for the US to default but time is running out fast to reach a compromise and get the necessary legislation passed by the House and Senate.

Boehner and the Democratic leader in the Senate, Harry Reid, on Monday released rival proposals aimed at resolving the crisis. The two roughly agreed on the total amount of proposed cuts to debt over the next ten years, with Reid proposing $2.7trn (£1.64trn) and Boehner $3trn. Crucially too for the Republicans, Reid has dropped Democratic demands for tax rises for the wealthiest.

One of the biggest differences is over timing, with Reid wanting the debt ceiling raised to a point where it will not be an issue until after next year's White House election in November. Boehner wants only a short-term deal and a return to the issue next summer.

Obama, who earlier in the day threw his support behind the Reid plan, warned of the serious damage that will be caused to the US economy if the country defaults. "We would not have enough money to pay all of our bills – bills that include monthly social security checks, veterans' benefits, and the government contracts we've signed with thousands of businesses," he said.

"For the first time in history, our country's triple-A credit rating would be downgraded, leaving investors around the world to wonder whether theUnited States is still a good bet. Interest rates would skyrocket on credit cards, mortgages and car loans, which amounts to a huge tax hike on the American people."

"The American people may have voted for divided government, but they didn't vote for a dysfunctional government," he said.