The International Monetary Fund’s policy committee has said the US needs to take “urgent action” to address the impasse over the debt ceiling.
Amid meetings in Washington of world finance officials, World Bank president Jim Yong Kim stressed the urgency for Washington policymakers to reach agreement on raising the debt ceiling before the Thursday deadline.
Mr Kim said the economic fallout of failing to act could include increased interest rates, slower global economic growth and falling business confidence. Such an outcome, he said, would have a “disastrous impact” on poor nations.
Republicans and Democrats in Congress have failed to make any significant progress towards a deal even as a threatened default by the Treasury crept uncomfortably closer and a partial US government shutdown neared the end of its second week.
Politicians in both parties said they were watching for the reaction to the political uncertainty by the financial markets when they reopen after the weekend.
There are two issues at play: the US government has been partially shut since October 1st because of Congress' failure to pass a normally routine temporary spending bill. Separately, president Barack Obama wants Congress to extend the government's borrowing authority — another matter that usually had been routine.
The focus of efforts to end the government shutdown and prevent a US default shifted to the Senate yesterday, where Senate leaders were in bipartisan talks aimed at resolving the twin stalemates.
"We haven't done anything yet" by way of compromise, Senate majority leader Harry Reid said, although he and other Democrats said repeatedly there was reason for optimism.
A member of the hardcore conservative tea party caucus, Republican John Fleming, said there was "definitely a chance that we're going to go past the deadline" of Thursday that Treasury secretary Jacob Lew has set for Congress to raise the 16.7 trillion US dollars debt limit.
President Obama met with Senate Democratic leaders at the White House after accusing Republicans of practicing the politics of extortion. "Manufacturing crises to extract massive concessions isn't how our democracy works, and we have to stop it," Mr Obama said in his weekly radio and internet address.
Ironically, though, House Republicans who triggered the shutdown with tea party-driven demands to eradicate Mr Obama’s health law conceded that they had temporarily been reduced to virtual bystander status.
"The Senate needs to hold tough," Republican Greg Walden quoted Speaker John Boehner as telling House Republican lawmakers in a private meeting yesterday morning. "The president now isn't negotiating with us."
One day after talks between the White House and House Republicans fizzled, the focus turned to the Senate.
There, a meeting of Mr Reid, Republican leader Mitch McConnell and two other lawmakers produced no immediate sign of progress. Later, Mr Reid and his top lieutenants spent more than an hour at the White House with Mr Obama and senior White House aides, including Mr Obama’s chief of staff, Denis McDonough. The leaders left without speaking and the White House offered no summary of the meeting.
Senate Democrats rejected a stab at compromise led by moderate Republican senator Susan Collins, while Republicans blocked the advance of a no-strings attached measure the Democrats drafted to let the Treasury resume normal borrowing. The party line vote was 53-45, seven short of the 60 required under Senate procedural rules.
In disagreement was a pair of issues, both important and also emblematic of a broader, unyielding dispute between the political parties over spending, taxes and deficits.
Mr Lew has said that without legislation to raise the debt limit, the government will deplete its ability to borrow money, risking a first-time federal default that could jolt the world economy.
A separate measure was needed to reopen the government fully after 12 days of a partial shutdown that has resulted in unpaid leave for 350,000 federal workers and that administration officials warn could spread hardship if it remains in effect.
Politicians agreed passage of both was essential.
But Republicans demanded concessions that Democrats were unwilling to give — unless they could get something in return.
Officials in both parties said that Mr Reid had raised the possibility with Republicans of a long-term spending bill that included deficit savings that could replace some or all of the across-the-board spending cuts that began taking effect at the beginning of the year.
The political calculations were evident. Polls show all portions of the electorate except tea party supporters are increasingly displeased, and Republicans are bearing the brunt of their unhappiness with favourability ratings at record lows.
Mr Fleming said the president saw the crisis “as the best opportunity” for Democrats to regain control of the House of Representatives in the 2014 elections. “It’s very clear to us he does not now, and never had, any intentions of negotiating,” he said.
House Democrats lined up en masse to sign a legislative petition calling on Mr Boehner to allow a vote on a bill to reopen the government, a step he has repeatedly refused to take.
In his Saturday address, Mr Obama said: “Politics is a battle of ideas, but you advance those ideas through elections and legislation — not extortion.”
Mr Obama has said repeatedly in recent weeks that he is willing to negotiate with Republicans on budget, health care or other issues, but only after the government is reopened and the debt limit is raised.
The shutdown, meanwhile, has sent ripples nationwide.
The White House, drawing attention to the effects of the partial shutdown on government research, noted that four of five Nobel Prize-winning scientists working for the federal government have had to stay home.
State governments have started laying off employees whose programmes depend on federal funding.
At the same time, some states have begun putting up their own funds to temporarily reopen national parks after the Obama administration gave them permission to do so without promising any reimbursement. The states want to stem the loss of tourist money that flows when the scenic attractions are open.
Tourists returned to the Grand Canyon in Arizona yesterday, and the Statue of Liberty in New York will reopen to the public today. Mount Rushmore in South Dakota, Rocky Mountain National Park in Colorado, and Zion National Park in Utah were among other landmarks scheduled to reopen by tomorrow.
PA