US President Barack Obama has warned that Wall Street should be concerned that a conservative faction of Republicans is willing to allow the country to default on its debt.
The US government has partially closed after Congress failed to agree a budget and will run out of cash on 17 October unless its debt ceiling is raised. In a TV interview on Wednesday, Mr. Obama said he was “exasperated”. He later held talks with Congressional leaders that ended without agreement.
The US government closed non-essential operations on Tuesday after Congress failed to strike a deal on a new budget. Republicans and Democrats are blaming each other for the impasse. The shutdown has left more than 700,000 employees on unpaid leave and closed national parks, tourist sites, government websites, office buildings, and more. However, as one budget crisis raged in Washington DC, another one - potentially more dangerous - loomed in the coming weeks. On 17 October, the US government will run out of cash to pay its bills unless the debt ceiling is raised.
On both issues, the Republicans who control the House of Representatives have demanded concessions from Mr. Obama and his fellow Democrats in return for funding the government’s continued operation and for raising the debt ceiling. Chiefly, the Republicans demand the repeal, delay or defunding of a healthcare reform law - dubbed Obamacare - passed by the Democrats in 2010. Major portions of that law, which was subsequently validated by the US Supreme Court and was a major issue in the 2012 presidential election, took effect on Tuesday.
On Wednesday, Mr. Obama met the heads of some of Wall Street’s biggest banks - including JPMorgan Chase, Goldman Sachs and Bank of America - to discuss the debt ceiling and other economic issues. The bankers are members of the Financial Services Forum, a lobby group which has, along with 250 other businesses, sent a letter to Congress urging it to raise the debt limit. Following the meeting, Mr. Obama told CNBC “it’s important for them to recognise that this is going to have a profound impact on our economy and their bottom lines”.
Mr. Obama also said he was unwilling to negotiate “with the extremist wing of one party” as the 17 October deadline neared. “The message I have for the [Congressional] leaders is, as soon as we get a clean piece of legislation that reopens the government…until we get that done, until we make sure that Congress allows [the Department of the Treasury] to pay for things that Congress itself already authorised, we are not going to engage in a series of negotiations,” he said.
As foreign markets anxiously monitored the US budget crisis, European Central Bank chief Mario Draghi warned that a protracted shutdown was “a risk not only for the US, but also the world economy”.
On Wednesday evening Mr. Obama met Republican House Speaker John Boehner, as well as Senate Republican leader Mitch McConnell, Democratic Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi at the White House. Mr. Boehner later left the talks complaining that the Democrats would not negotiate. “All we’re asking for here is a discussion and fairness for the American people under Obamacare,” he told reporters.
Nancy Pelosi, however, accused the Republicans of “moving the goalposts” on the budget deal. Harry Reid said Democrats were “locked in tight on Obamacare” and neither the president nor Democrats in Congress would accept changes to the law as the price for a deal on reopening the government.
Analysts say Mr. Boehner could end the current government showdown by allowing the House to vote on a “clean” budget bill that does not alter the health law, because that could pass with a coalition of Democrats and moderate Republicans. But doing so would risk his standing with the most conservative elements of his caucus.
Earlier on Wednesday, senior US intelligence officials warned the shutdown of the government seriously damaged the ability of spy agencies to protect the US. Director of National Intelligence James Clapper told a Senate panel that an estimated 70% of intelligence workers had been placed on unpaid leave.
Also on Wednesday, the White House announced Mr. Obama would cut short a planned four-nation tour of Asia next week. He will attend regional summits in Indonesia and Brunei, but skip Malaysia and the Philippines due to the government shutdown.
The US government ceased operations deemed non-essential at midnight on Tuesday, when the previous budget expired. National parks and Washington’s Smithsonian museums are closed, pension and veterans’ benefit cheques will be delayed, and visa and passport applications will go unprocessed. However, members of the military will be paid.