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US warns on debt, markets edgy

business Updated: Jul 28, 2011 21:00 IST
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The political brinkmanship over raising the US debt ceiling continued to weigh on global markets on Thursday amid fears that a deal won’t be clinched in time to prevent the world’s largest economy from a potential debt default.

Investors are anxious that a deal to raise the country’s $14.3-trillion borrowing limit won’t be in place by the August 2 deadline.

A bill to cut the deficit faced a nail-bitingly close vote in Congress on Thursday as House of Representatives speaker John Boehner sought to quell an internal revolt and push his plan to avoid a ruinous default.

President Barack Obama has threatened to veto the bill and a majority of the Democratic-controlled Senate has vowed to vote against it. But a successful vote in the House would give the bill legitimacy and make it a crucial element of the legislative chess game that is likely to play out until the August 2 deadline.

The US Treasury has said that it will run out of spending money next Tuesday unless the Congress agrees to raise the debt ceiling. Even if an 11th-hour compromise emerges, the US could lose its top-notch credit status if ratings agencies are not convinced it has done enough to address its bulging debt burden.

The White House has warned of “catastrophic” consequences if a deal is not reached.

“Time is running out. We need to come together now. It is only a matter of days before the August 2 deadline. And while at midnight on August 2 we don’t all turn into pumpkins, we do as a country lose our borrowing authority for the first time in our history. And that would be a very bad thing,” said White House press secretary Jay Carney.