Drama at US budget talks as lawmakers remain deadlocked – 5597

14th July 2011

However, the reports were later denied. The news comes as credit ratings agency Moody's warned that continued political deadlock over raising the government's debt ceiling might lead it to downgrade the US from its triple A credit rating.

Federal Chairman Ben Bernanke said a recession on the scale of 2008 would be "certainly conceivable" and that it would have "a very adverse effect very quickly on the recovery"- if the debt ceiling is not raised, reports the Financial Times (paywall).

The focus of the talks was centred on spending cuts, with discussions due to restart later on Thursday.

City experts warned that the lack of progress in Washington in recent days over the debt ceiling was fanning fears that the world's biggest economy might default on some of its debt, adds a report in the Guardian.

Lawmakers remained deadlocked over whether raise the US debt ceiling, says the report.

The dollar lost ground against most major currencies after Moody's and Chinese ratings agency Dagong both put the US on negative watch.

Michael Hewson of CMC Markets called the threat of a Moody's downgrade in the Guardian a "cruise missile across the bows of US politicians".

"One thing is certain it won't take long for Fitch and S&P to follow suit if the politicians don't come to their senses."

Officials have warned that, as things stand, America will run out of cash to meet its bills on 2 August. Bernanke said that without agreement the US would continue to service its debts and stop benefits like Social Security payments instead.

Republicans are demanding hefty spending cuts, worth around $2.4tn over the next ten years, in return for voting to raise the debt ceiling, while Obama is pushing for a $4tn deficit reduction plan over the same period, with a hefty dose of increased tax revenue.

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