US debt deadline hopes rise

Updated: 2011-08-01 08:08

By Richard Cowan and Rachelle Younglai (China Daily)

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Leading Republican expresses optimism as talks continue

WASHINGTON - Hopes emerged that lawmakers were close to a last-minute deal on Sunday that could raise the US debt ceiling by $2.4 trillion and assure financial markets that default can be avoided.

Prospects that a significant package was within grasp brightened after Republican and Democratic leaders reopened stalled talks with the White House, and Senate Minority Leader Mitch McConnell said he was confident and optimistic.

"I think we've got a chance of getting there," McConnell, a Republican, said.

ABC News reported that US debt negotiators had reached a tentative agreement on a package, but a White House official cautioned that a deal was "not there yet".

Senate Majority Leader Harry Reid, a Democrat, pushed back a key procedural vote on a debt limit plan by 12 hours on Sunday, buying additional time for both sides to hammer out details before Asian markets open.

"There are negotiations going on at the White House now on a solution that will avert a catastrophic default on the nation's debt," Reid said on the Senate floor late on Saturday.

"There is still a distance to go," he said.

Time is running out for the US government to raise its $14.3 trillion borrowing limit before the Tuesday deadline when the Treasury says it will run out of money to pay its bills and could no longer service the national debt. But a cautious optimism had begun emerging on Capitol Hill.

"We're a long way from any kind of a negotiated agreement, but there is certainly a more positive feeling about reaching an agreement this evening than I've felt in a long time," Senator Richard Durbin, the second-highest Democrat in the Senate, told reporters late on Saturday.

If a credible bipartisan deal is tantalizingly close, the White House has said it would accept a very short-term extension of the debt limit to allow lawmakers time to nail down the compromise.

Given talks are heading down to the wire, Washington is chafing against the deadline to get a deal agreed, legislation drafted, voted upon and signed into law.

The political gridlock over how to reduce the deficit and raise the debt ceiling has put the US at risk of losing its top-notch Triple A credit rating.

A downgrade could prompt global investor flight from US bonds and the dollar, raising borrowing costs for Americans for years to come and threatening an already fragile economy that could easily fall back into recession.

A US default would plunge financial markets and economies around the globe into turmoil. US stock markets last week posted their worst losses in a year, the dollar slumped and nervous investors put cash into insured bank accounts.

"Our country is not going to default for the first time in its history - that's not going to happen," McConnell said, holding out hope for a compromise deal.

Qian Liwei, a researcher at the Institutes of American Studies with the China Institute of Contemporary International Relations, said any agreement would be a relief to China, but vigilance is important as the debt wrangling could be repeated.

"The essence of this problem is a political struggle between parties in the US, but the whole world was dragged to the edge of a global crisis by their playing with fire," Qian said. He pointed out that the US should avoid any repetition in case the situation got out of hand.

"The rate of US Treasury securities is a benchmark for global investment rates. If it fluctuates it will not only trigger a chain reaction but also damage the credibility of the US," he said.

Meanwhile, Qian said the potential plan would not affect China too much but the country needs to accelerate the diversification of its foreign reserve. China has already shifted Treasury securities, buying more options from South Korea, Japan and European countries.

Qian suggested that the country should pay more attention to the European Stability Mechanism, a recently established fund of 700 billion euros ($1 trillion), to lower the risk.

Wei Tian contributed to this story.

Reuters

(China Daily 08/01/2011 page1)