Barack Obama accuses the US Congress of risking a global banking catastrophe as debt talks collapse

Monday, July 25, 2011
By Paul Martin

Angry president lashes out after Republicans walk away
from talks on borrowing limit, raising the spectre of US default

Paul Harris
Sunday 24 July 2011

Talks to stave off a potentially catastrophic US default on debt payments were in crisis as Republicans and Democrats struggled to avert a disaster that could trigger a global economic crisis.

Both sides agree that the US needs to pass legislation to raise its debt limit above its current level of $14.3 trillion (£8.7tn). But negotiations collapsed in acrimony late on Friday over details of a package of spending cuts and tax rises that would help to pay for such a move.

A visibly angry President Barack Obama attacked the Republican Speaker of the House, John Boehner, for refusing to return his phone calls and then abandoning the negotiations. “I’ve been left at the altar now a couple of times and I think that one of the questions that the Republican party is going to have to ask itself is: can they say yes to anything?”

If agreement is not reached, it could trigger what had once been unthinkable: a US default on its debt payments. If that happened, most experts predict, it would see a plunge in stock and bond markets worldwide that would threaten a new great recession. The deadline for agreement is just over a week away, on 2 August.

Though most people still expect a deal of some kind before then, preparations for the worst are being made. Obama is being briefed by senior officials on the consequences of default on Wall Street, and major banks and institutions are laying the groundwork for survival investment strategies. “I still believe in the end we will avoid default, but we are playing with fire,” said Larry Haas, a former official in the Clinton White House.

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