The White House has signalled that it would be open to a short-term hike in the US debt limit as the country moved a step closer to its first-ever default while a separate impasse, a partial government shutdown, entered its second week.
The shutdown, which centres on a fight over funding for President Barack Obama’s new healthcare law, has pushed hundreds of thousands of workers off the job, closed national parks and museums and stopped an array of government services.
A default could have far bigger consequences.
Economists say it could trigger a financial crisis and recession that would echo 2008 – or worse.
That crisis plunged the country into the worst recession since the Great Depression of the 1930s.
Gene Sperling, an Obama economic adviser, reiterated a vow not to negotiate on the debt because it would sanction the threat of default as a bargaining chip and increase the chance of default in the future. Senate Democrats are drafting legislation to raise the nation’s debt limit without the type of unrelated conditions Republicans have said they intend to demand, officials said yesterday.
A defiant John Boehner, the Republican leader of the House of Representatives, has insisted that Mr Obama must negotiate on changes to his healthcare law and spending cuts if he wants to end the shutdown and avert a default.
Mr Boehner said on Sunday that he lacks the votes to pass a straight-forward temporary spending bill that would keep the government operating.
The uncompromising talk rattled financial markets early yesterday as stocks slumped. China, which is the United States’ biggest foreign creditor, urged that all efforts are made to avoid a default.