A sharply divided US Congress pursued rival budget plans on Monday that appeared unlikely to win broad support, pushing the United States closer to a ratings downgrade and debt default that would send shockwaves through global markets.
With an August 2 deadline little more than a week away, lawmakers have steadfastly refused to compromise and talks once again collapsed in acrimony. Democrats and Republicans split into two camps to work on their own proposals.
Financial markets were uneasy in Asia and Europe on Monday about the prospect of a first-ever US debt default, which Fed chairman Ben Bernanke has said would be a “calamitous outcome” for the US and the global economy.
But there was no panic selling that some politicians in Washington had feared after the weekend talks broke down, although that day could be drawing closer said Quincy Krosby, market strategist at Prudential Financial in New Jersey.
US President Barack Obama has tried to reassure global markets that the country will be able to service its debt and meet other obligations after August 2, when the treasury department says the US will run out of money to pay its bills.
The political brinkmanship unsettled investors on Monday. Stock markets in Europe fell 0.4% and in Asia they fell around 1% and US stock futures prices dropped 0.7%. Gold surged to another record high, while oil and other commodities fell on Monday as the countdown for the US to reach a debt deal or face a disastrous default drove investors into safer assets.