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US default and credit downgrade loom as Republicans refuse deal

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As the US political crisis hurtles toward debt default, Republicans in the House of Representatives demonstrated the suicidal nature of their zealotry once more as they refused a proposal by the party leadership to reopen the government and lift the debt ceiling. International reaction was utter disbelief as cataclysmic economic consequences threatened and ratings agency Fitch put the US on notice of a downgrade in its triple-A status, warning that the turmoil in Washington "risks undermining confidence in the role of the US dollar as the pre-eminent global reserve currency”.

While Republicans and Democrats have come to compromise in the Senate, the Tea Party extremist faction in the House of Representatives seemed oblivious to anything beyond their bizarre ideology. With approval ratings for Republicans plummeting since the crisis began, House Republicans seem uninterested in either the centre ground or in comprehending the potential fallout from their actions.

John Boehner, Speaker of the House was left stranded and red faced as he was forced to pull a bill, realising that it did not have sufficient support to pass. Despite attempting to provide some concessions, he was still rebuffed by the conservatives that are so disturbingly vocal in the House. Conservative pressure groups like Heritage Action threatened action against any Republicans voting for the bill and support for a last minute solution faded.

If the debt ceiling is not raised tomorrow, the US will not immediately default, but will be obliged to use only its cash reserves and incoming revenue. This will only last so long, and confidence in Treasury bonds will collapse, and a default on US government debt could happen with a few days. At that point, not only is the US economy likely to slip back into recession, but the shockwaves will be felt around the world as the global reserve currency is fundamentally undermined.

Written by Cyrus Bozorgmehr - Google+ Profile - More articles by Cyrus Bozorgmehr

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