Day 14: Default looming, no solutionPublished 11:16am Monday, October 14, 2013
WASHINGTON — The United States moved perilously closer to an economy-rattling default and a partial government shutdown entered its third week as Senate Democratic and Republican leaders remained at odds over spending in their last-ditch negotiations to end the crises gripping the nation.
Majority Leader Harry Reid, D-Nev., and Minority Leader Mitch McConnell, R-Ky., spoke by phone Sunday but failed to agree on a deal to raise the nation’s borrowing authority above the $16.7 trillion debt limit or reopen a government still shuttered on its 14th day. Congress is racing the clock with Treasury Secretary Jack Lew warning that the U.S. will quickly exhaust its ability to pay the bills on Thursday.
The reaction of world markets and the Dow Jones on Monday could provide the necessary jolt to Senate leaders, who represent the last, best chance for a resolution after talks between President Barack Obama and House Republican leaders collapsed.
The shutdown has furloughed 350,000 federal workers, impeded various government services, put continued operations of the federal courts in doubt and stopped the IRS from processing tax refunds. Some parks and monuments remain closed, drawing a protest at the National World War II Memorial on Sunday that included tea party-backed lawmakers who had unsuccessfully demanded defunding of President Barack Obama’s 3-year-old health care law in exchange for keeping the government open.
Economists see greater financial danger from an historical default. Christine Lagarde, the International Monetary Fund’s managing director, spoke fearfully about the disruption and uncertainty, warning on Sunday of a “risk of tipping, yet again, into recession” after the fitful recovery from 2008.
Reid and McConnell — five-term senators hardened by budget disputes and years of negotiations — are at an impasse over the automatic, across-the-board spending cuts known as sequestration and whether to undo or change them as part of a budget deal. Republicans want to keep the spending at the deficit-cutting level of the 2011 budget law while Democrats are pressing for a higher amount.
“I’m optimistic about the prospects for a positive conclusion to the issues before this country today,” Reid said as the Senate wrapped up a rare Sunday session.
McConnell insisted a solution was readily available as he embraced the proposal from a bipartisan group of 12 senators, led by Sens. Susan Collins, R-Maine, and Joe Manchin, D-W.Va., that would re-open the government and fund it at current levels for six months while raising the debt limit through Jan. 31.
It also would give agencies greater flexibility in dealing with the automatic budget cuts, delay the medical device tax for two years and establish income verification for individuals receiving subsidies to buy health insurance.
“It’s time for Democrat leaders to take ‘yes’ for an answer,” McConnell said in a statement.
“This haven’t put us on suicide watch yet,” Manchin joked Monday morning, “but they’re concerned about us.”
He said the markets are growing increasingly “skittish” about the possibility of default.
The markets were closed for Columbus Day Monday, but U.S. futures were down sharply. Dow Jones industrial futures are down 104 points to 15,071. S&P futures have lost 12.3 points to 1,686.70. Nasdaq futures are down 15.75 points to 3,209.75. Earlier, trading in Asia was muted, with markets in Tokyo and Hong Kong closed for holidays.
Outside of those major financial centers, China’s Shanghai Composite Index rose 0.4 percent to 2,237.77 while South Korea’s Kospi was off 0.2 percent at 2,020.27. Trading was also muted in other financial markets, particularly among currencies. The euro was flat at $1.360 while the dollar rose 0.1 percent to 98.25 yen.
Manchin said, “The leaders have to come together” and decide what time frame a stopgap spending bill would cover and how much it would cost.