Analysis: Default avoided but downgrade looms
An unprecedented US default has been avoided but a credit downgrade is still possible.
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An unprecedented US default has been avoided but a credit downgrade is still possible.
That is the outcome of the debt ceiling and deficit cutting deal reached yesterday in Washington DC.
It now remains for both houses of the US Congress to approve the deal – a move that will involve all but the Tea Party Republicans who want deeper spending cuts and liberal Democrats who say the cuts are too great.
News of the agreement initially buoyed global investors, with sharemarkets in Asia rising, but European markets closed down significantly down as manufacturing figures fuelled concern that the entire pace of global growth may be significantly slowing down.
US manufacturing was lower than expected in July while activity at euro-zone factories slowed to a near-standstill, recording its weakest growth rate in almost two years.
In addition, China's manufacturing activity continued to slow in July due to Beijing's tightening measures.
Stocks on Wall Street also climbed after opening but slipped well into negative territory after the poor manufacturing report.
Federal spending cuts
The proposed legislative package will slice more than $US2-trillion from federal spending over a decade and permit the nation's $US14.3-trillion borrowing cap to rise by up to $US2.4-trillion,.
This will be enough to keep the government afloat through the 2012 elections — a key objective for President Obama, whose poll numbers have sagged as the summertime crisis dragged on.
While it is widely expected the plan will pass, given it is designed to create a centrist majority, there are still no guarantees.
Only one day remains before the deadline to avoid a US default on payments to investors in Treasury bonds, recipients of Social Security pension cheques, those relying on military veterans' benefits and businesses that do work for the government.
The House of Congress is due to vote this morning (NZ time) after an hour of debate with the Senate following.
Nevil Gibson
Tue, 02 Aug 2011
Tue, 02 Aug 2011
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Analysis: Default avoided but downgrade looms
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