WASHINGTON, D.C.: With a potential debt default looming, Senate leaders are close to a deal to stave off a self-inflicted political calamity that would shred United States (US) credibility and rock the global economy.
Signs of hope emerged on Monday (Tuesday in Manila), three days before a deadline to raise the US government’s borrowing limit and as a partial federal government shutdown enters its third week.
Senate Majority Leader Harry Reid and Republican Minority Leader Mitch McConnell conducted low-key talks aimed at saving the day.
“I’m very optimistic we will reach an agreement that’s reasonable in nature this week to reopen the government, pay the nation’s bills and begin long-term negotiations to put our country on sound fiscal footing,” Reid said.
At the conclusion of the Senate session, he said that “we are not there yet, but tremendous progress” has been made, in words that eased tension on the markets.
The Dow Jones Industrial Average closed 0.42 percent higher at 15,301.26 while the broader S&P 500 rose 0.41 percent to 1,710.14.
Asian markets broadly rose on Tuesday, with Tokyo, Hong Kong and Seoul all up in early trading.
“It’s not like the US can’t afford to pay its bills; it’s more like its wife has just hidden its checkbook,” said CLSA Asia-Pacific Markets equity strategist Nicholas Smith.
“Most fund managers appear to be more frightened of being left behind if the market rips than of the apocalyptic scenario of failing to fix the debt ceiling on time,” he told Dow Jones Newswires.
But the dollar slipped against the yen: the greenback bought 98.49 yen in Tokyo trade against 98.67 yen in New York on Monday.
China and Japan—which between them hold more than $2.4 trillion of US debt—have urged Washington to get its house in order.
Japan’s Finance Minister Taro Aso on Tuesday called on US politicians to get a grip on the situation.
“Many of them don’t seem to understand well the magnitude of the international impact this problem could have,” he told reporters.
Oil prices also slipped in Asia trading, with West Texas Intermediate (WTI) for delivery in November down 17 cents to $102.24 a barrel, and Brent North Sea crude for November down eight cents to $110.96 a barrel.
Ken Hasegawa, energy desk manager at Newedge Brokerage in Japan, said that traders have concerns about the US economy even if a deal is struck.
The partial government closure meant that economic data, including on jobs, has not been collected, making it “difficult to make bets either way.”
“Everyone just needs to be patient,” Reid said after the Senate session, adding that he hoped Tuesday “will be a bright day.”
McConnell added: “I share his optimism that we are going to get a result that will be acceptable to both sides.”
Their comments were the strongest sign yet that Republicans and Democrats—in the Senate at least—want to end the damaging political crisis that has dented the country’s international standing.
The Reid-McConnell effort is the last chance to reach a deal before the US Treasury exhausts its borrowing authority—but its success is far from assured.
Should the Democratic-led Senate coalesce on an agreement, the focus would then shift to whether Republican Speaker John Boehner can secure enough support from his conservative coalition in the House of Representatives to send it to Obama’s desk.
Boehner faces Tea Party-backed conservatives who oppose almost any deal that does not include anti-Obamacare provisions or which fails to rein in federal spending.
Number two House Republican Eric Cantor said leadership has “not made any decision” yet on selling the potential deal to the rank-and-file.
“We will meet with our members in the morning and determine the best path forward,” he said.
Yet with progress apparent, Obama on Monday canceled a meeting he had called with Reid, McConnell, Boehner and Democratic House Minority Leader Nancy Pelosi.
An official said the talks were put off to “allow leaders in the Senate time to continue making important progress towards a solution that raises the debt limit and reopens the government.”