U.S. Congress struggles for deal with credit warning from Fitch

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U.S. Congress struggles for deal with credit warning from Fitch

(Xinhua) 16:24, October 16, 2013

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WASHINGTON, Oct. 15 (Xinhua)-- U.S. House Republicans on Tuesday called off a vote on their latest plan to extend the debt ceiling and reopen the federal government, adding uncertainty to the prospect of fiscal talks as a potential default becomes imminent.

The House GOP leaders canceled the vote as they failed to unite their troops behind the plan which they had hoped to bring to the floor.

Under the plan, the debt limit would be lifted through February and the federal government will be funded through mid-December. The proposal would also prevent the Treasury Department from taking "extraordinary measures" to buy more time under its borrowing limit. ' The delayed vote ended a frantic day when the House Republicans scrambled to cobble together a deal.

House Speaker John Boehner said Tuesday morning after a meeting with the GOP members that they were trying to find a way forward in a "bipartisan way" and he also acknowledged that there were a lot of opinions about what direction to go.

House Democratic Leader Nancy Pelosi said the House GOP deal was meant to derail the good-faith effort in the Senate, criticizing the GOP members as "reckless, radical and irresponsible."

As House Republicans struggled with their own debt ceiling and government funding bill, Senate Minority Leader Mitch McConnell and Majority Leader Harry Reid suspended their recent talks. But they resumed their negotiations right after the House canceled the vote. The upper chamber appeared close to a tentative deal.

The budget talks continued amid growing concerns over the reliability of U.S. debt. While the demand for longer-term U.S. debt has remained relatively stable, uneasy investors have begun trimming their holding of short-term U.S. debt.

Yields on the short-term Treasury securities rose sharply in recent days, as the fiscal impasse in Washington fueled fears that the payment of short-term debt would be put on some level of risk.

Fitch Ratings, a major credit rating agency, issued a warning Tuesday afternoon that it would downgrade the sovereign credit rating of the United States from AAA, citing the political brinkmanship over raising the federal government's borrowing limit.

Fitch said that although it continues to believe the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default.

"Although the (U.S.) Treasury would still have limited capacity to make payments after 17 October, it would be exposed to volatile revenue and expenditure flows," it said.

It added that failure by the U.S. government to honor interest or principal payments on the due date of U.S. Treasury securities would lead Fitch to downgrade the country's sovereign issuer default rating to "restricted default".

The U.S. Treasury has made it clear that extraordinary measures will be exhausted by Oct. 17, leaving cash reserves of just 30 billion U.S. dollars. It is so far unclear how the federal government would operate beyond that date.