The debt crisis
WITH the shutdown in America entering the tenth day on Wednesday, there is as yet no sign of a way out of the fiscal calamity. But more than the gridlock, which has already thrown the public health system out of joint, is the looming crisis over the debt ceiling, one that could drive the country towards default. Positions have hardened on both sides of the Democrat/Republican divide with Barack Obama personally informing John Boehner, Speaker of the House of Representatives, that he would not sit down to negotiate conditions on raising the debt ceiling.
In a sense, the US president has ignored the warning advanced by the International Monetary Fund (IMF) that the country faced the prospect of recession or "worse" should the stand-off over deficit persist. In the span of a week since the shutdown, it is the dispute over the debt ceiling that has triggered the deepest alarm. "If there was a problem lifting the debt ceiling, it could well be that what is now a recovery would turn into a recession or even worse," is the IMF chief economist, Olivier Blanchard's caveat. And beyond the legislative portals of Washington and the White House administration, the shutdown has had an impact on health services with hundreds denied the opportunity to undergo clinical trials at the National Institute of Health. There appears to be an element of disenchantment with the Republicans, and public opinion increasingly blames the House of Representatives for the stalemate. Arguably, this may have prompted Mr. Obama to deliver his "no-surrender message" to Mr. Boehner, specifically emphasising the need for a "clean bill" that will raise the debt ceiling without strings, one that may yet win the support of some Republicans given the mood-swing. Notably, a survey for The Washington Post and ABC News points to 70% of Americans blaming the Republicans for the budget stand-off ... compared to 51% for the president.
The legislative disconnect, a quirky outcome of the elections, has had an impact on public mood. Clearly, the polls are tilting dramatically against Mr. Boehner and his fractured Republicans. Mr. Obama may seemingly be on course to win a political victory, but the economic crisis defies a formulaic prescription. The crisis was ignited with the failure to pass a federal budget last week; it has now become considerably graver as the possibility of not raising the debt ceiling grows. Small wonder the markets, driven to the edge, appear to be disoriented. Five years after the jitters, the alarums are resonant in Wall Street again.
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