US government shutdown

The language is laughable – we're 'at risk' of being tipped into 'recession'. What have we got now? 'Recovery' from the last recession ?! Could they be talking about gloabal economy collapse?

US shutdown: IMF's Christine Lagarde tells America's lawmakers they risk tipping world into recession

Stark warning from IMF chief comes as search for deal to extend debt ceiling shifts to Senate

the Independent,

13 October, 2013

American lawmakers risk causing a “massive disruption the world over” that could tip the global economy into another recession if politics gets in the way of raising the country’s debt ceiling and the ongoing government shutdown remains unresolved, Christine Lagarde, the head of the International Monetary Fund, warned today as the US Senate became the focus of talks to end the budgetary deadlock in Washington.

The stark assessment by Ms Lagarde, a former French Finance Minister, came after news that talks between the Republican Speaker of the House of Representatives, John Boehner, and President Barack Obama had broken down, putting the onus on the Senate leadership to craft a bipartisan pact to avert what experts predict would be financial catastrophe.

The US government will hit the congressionally-mandated ceiling on how much money it can borrow to fund its commitments by 17 October. If by then the $16.7 trillion (£10.4trn) limit is not raised by the legislature, the US would be forced to walk down a road usually associated with weaker economies: dishonouring its spending commitments and defaulting on its debts, an outcome that Ms Lagarde said could shatter the fragile economic recovery under way in the US and around the world.

“If there is that degree of disruption, that lack of certainty, that lack of trust in the US signature, it would mean massive disruption the world over, and we would be at risk of tipping yet again into a recession,” she told NBC.

The IMF chief also poured cold water on suggestions by some within the Republican camp, including the Kentucky Senator Rand Paul, that the government need not default if the ceiling is not raised. Mr Paul told CNN that “not raising the debt ceiling means you have to balance your budget. It doesn’t mean you have to default.”

But Ms Lagarde said there was no room to get around the limit and what it meant. “When you are the largest economy in the world, when you are the safe haven in all circumstances, as has been the case, you can’t go into that creative accounting business,” Ms Lagarde said.

The warning came on the heels of a communique issued on Saturday by G20 finance ministers and central bankers in which they said: “The US needs to take urgent action to address short-term fiscal uncertainties.” Also on Saturday, the head of the World Bank, Jim Yong Kim, said: “We’re now five days away from a very dangerous moment… Inaction could result in interest rates rising, confidence falling and growth slowing.”

Domestically, a group of state governments swung into action to reopen some national parks and monuments that had been closed owing to the partial federal shutdown. In New York, tourists were once again able to take the ferry from Manhattan to the Statue of Liberty after the Governor, Andrew Cuomo, said the state would foot the daily bill of $61,600 to keep the attraction open. Similar deals were struck in Arizona to reopen the Grand Canyon, and in South Dakota to welcome visitors back to Mount Rushmore.

Meanwhile, in Washington, as the world looks on nervously and as state governments attempt to get around the federal closure, the Democratic Senate Majority Leader, Harry Reid, was in negotiations with his Republican counterpart in the chamber, Mitch McConnell, as they tried to put together a deal to break the deadlock. However, there were no signs of progess on Sunday, with a mid-afternoon phone call between the two leaders described as “cordial but inconclusive” by a Democratic source who spoke to Politico.

The venue shifted after the President rejected an offer from the House Speaker, Mr Boehner, to raise the debt ceiling temporarily until late November. The proposal was contingent on the White House agreeing to more detailed talks on the national budget. Democrats, however, would like a longer-term solution to the debt ceiling issue.

As the talks drag on, the risk is rising of market turmoil, particularly after stocks rose at the end of last week on signs of an agreement. While US stock markets will reopen on Monday, the bond markets are closed until Tuesday for the Columbus Day holiday.

Senate talks on shutdown break up as fears grow over markets' response

Productive and substantive' talks between Reid and McConnell to resume on Monday as debt ceiling deadline nears

the Guardian,

13 October, 2013, 23.50 GMT

The last ongoing talks to avert US default broke up on Sunday evening without resolution amid signs that investors were growing increasingly nervous that politicians would not reach a deal in time.

Democrat majority leader, Harry Reid, appeared briefly in the Senate to say he had a "productive and substantive" discussion with Republican Mitch McConnell and was optimistic about a deal, but suspended public proceedings until 2pm on Monday while his backroom talks continued.

The only outward sign of movement from the White House came in a Sunday afternoon phone call with House minority leader Nancy Pelosi, in which President Obama reiterated his insistence on Republicans agreeing to end a government shutdown and extend the debt ceiling before he would negotiate any budget concessions.

Political veterans in Washington have warned of an investor backlash if markets reopen this week with Republicans and Democrats still unable to agree to raise the US debt limit. The New York Stock Exchange is open on Monday, despite the Columbus Day public holiday. Crucially, bond traders do not return until Tuesday.

Early currency trading in Asian markets, showed the dollar sliding against the yen and other leading currencies on Monday morning in reaction to the weekend's continued impasse.

The futures market gave an indication of how US equities traders might react when it also opened down on Sunday night.

US markets had rallied sharply toward the end of last week, as both sides finally looked close to a deal that would extend the debt limit and possibly also end a government shutdown that is now into its third week. But since stock markets closed on Friday afternoon, separate proposals from the House of Representatives and the Senate have been rejected by the White House, leaving only the fragile talks between Senate rivals Harry Reid and Mitch McConnell still ongoing.

Earlier on Sunday a series of lawmakers and former officials, appearing on television talkshows, suggested that even these remaining discussions were mired in disagreement, raising again the serious possibility of a US default when the current debt limit expires on Thursday.

David Plouffe, formerly Obama's senior political adviser, put the prospects of a deal before Thursday at "no better than 50/50". "The country needs to prepare that this will go on for a while," he told ABC, arguing that the best hope of a deal now would be when "the markets say something very loud when they open tomorrow".

The former defence secretary Leon Panetta also warned of long-term diplomatic and military consequences. "America is being weakened and we are sending a message to the world that the United States can't govern," he said on NBC. "I think our readiness is already badly damaged."

Members of the current Obama administration were noticeably absent from the Sunday morning television schedule, but a succession of senior lawmakers acknowledged that progress had stalled and said negotiations could even be in reverse. The moderate Republican senator Susan Collins confirmed that Democratic majority leader, Reid, had rejected a plan of hers, involving symbolic concessions over President Obama's healthcare reforms in exchange for longer-term budget agreements, which caused brief optimism on Friday.

"I was very surprised that Senator Reid said that. I don't think it was very productive," she told CNN. "There is a lot of justified anger at Congress and the president in failing to solve these problems. The president should have brought the leaders to the White House far earlier than he did."

Collins insisted that there were still "a lot of productive conversations going on behind the scenes". "We had 12 people meet yesterday, just last night I had two more Democrats and a Republican contact me to say they wanted to be part of group," she said.

But attention is now focused on direct talks between Reid and the Republican minority leader, McConnell, who were expected to meet again late on Sunday.

The conservative Republican Rand Paul said he feared talks were going backwards because Senate Democrats had introduced demands over the so-called sequester, budget cuts agreed to end the last debt stand-off in 2011.

"To me there is a big picture problem," he told CNN. "What I cannot accept is that the Democrats want to end the sequester cap. It's a non-starter."

Instead, he argued that the consequences of breaching the debt limit on Thursday would not be as dire at the White House has insisted, because it could chose to prioritise interest payments over other obligations and therefore avoid a formal default.

"It is irresponsible for the president to scare people; a good leader should be saying we will never default," Paul said. "We have tax revenues of $220bn a month and $20bn a month in interest payments to pay. Not raising the debt ceiling means you have to balance the budget – it does not mean you have to default. They are not the same thing."

But Christine Lagarde, the managing director of the International Monetary Fund, repeated warnings that emerged from a week-long meeting of global finance ministers in Washington, insisting there was no such thing as a partial default that prioritised interest payments but reneged on other obligations.

"You have to give certainty to the rest of the world," Lagarde said, on NBC. "Creative accounting is not the solution, and markets know that. You have to give certainty to the rest of the world. You have to honor your signature."

Such talk of partial default has also alarmed many in Washington, and led to a note of increasing exasperation even among more moderate Republicans.

"We are in freefall as Republicans and Democrats are not far behind," Senator Lindsey Graham said on ABC, warning that he could not see any compromise right now. "I can see why 60% of people wanted us all voted out. We are ruining both institutions."

The Democratic whip Dick Durbin said the talks between Reid and McConnell were still the best hope, and should be seen in themselves as a sign of progress.

"It is a breakthrough," he told NBC. "I know it doesn't sound much, but the conversation that started yesterday has the promise of finding a solution. I don't want to be overly optimistic but there is a lot at stake."