US shutdown: Debt default imminent as frantic political attempts fail

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The US was pushed to the brink of an unprecedented debt default as talks to end two- week-long shutdown collapsed. (Reuters) The US was pushed to the brink of an unprecedented debt default as talks to end two- week-long shutdown collapsed. (Reuters)
SummaryFailed talks have prompted a rating agency to warn a possible downgrade in creditworthiness.

The US was on Wednesday pushed to the brink of an unprecedented debt default as talks to end two- week-long shutdown collapsed, prompting a top ratings firm to warn of a possible downgrade in the country's creditworthiness which will have a cascading impact on the global economy.

Frantic attempts to persuade House Reblicans to lift the federal debt limit collapsed last night, leaving Washington careering toward a critical deadline of October 17 to raise the country's debt ceiling.

John Boehner, the House speaker, failed to persuade elements within his own Republican caucus to back a bill designed to placate conservatives.

Boehner's bill, which was drafted after Tea Party-backed members of the House voiced their opposition to a deal forged between Democrats and Republicans in the Senate, had been expected to be put to a vote last night.

But it was pulled at the last minute after the House leadership realised that the bill, opposed by Democrats, did not even have the support of sufficient Republicans to pass.

The news capped a day of confusion and setbacks on Capitol Hill that left Congress back where it had started.

Amid the congressional disarray, rating agency Fitch has put the US on warning for a downgrade. It placed the nation's top-grade AAA rating on a "negative watch", citing the possibility the Treasury could default on its obligations after October 17 if the ceiling is not raised.

"The US authorities have not raised the federal debt ceiling in a timely manner," Fitch said on Wednesday.

"Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a US default."

The US must raise its USD 16.7 trillion debt limit by Thursday or risk default.

Politicians, bankers and economists have warned of global economic consequences unless an agreement can be reached.

Hardline conservatives triggered the budget warfare 16 days ago, forcing the first government shutdown in 17 years by demanding that President Barack Obama gut his signature healthcare overhaul.

Senate Democratic leader Harry Reid and his Republican counterpart, Mitch McConnell, are expected to brief their colleagues later today.

But even if a compromise can overcome procedural hurdles, it remains unclear whether it could muster enough votes in the Republican-led House to pass before the October 17 deadline.

The Senate's negotiations were initially put on hold yesterday to give House Republicans a chance to

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