US president Barack Obama has slammed the Republican plan to increase the country’s borrowing limit, claiming the impasse could spark a “deep economic crisis”.
The US is urgently seeking a solution to extend its borrowing scheme ahead of the August 2 deadline set by the US Treasury, which says that by that point it will run out of cash to pay its bills.
Obama said the two-step plan offered by the Republicans was “no way to run the greatest country on earth”. Obama himself supports a plan by senate democrats to raise the debt limit in a single move that would be accompanied by $2,700bn in spending cuts. It is believed this move would give the US government enough borrowing authority to reach until the 2012 presidential election.
The Republicans in the House of Representatives want to initially increase the debt ceiling by $1,000bn, and have a second vote in six months for a further increase tied to deeper fiscal reforms.
Obama believes this move may still impact the AAA credit rating of the US and would not solve the debt problem.
He said: “Once again, the economy will be held captive unless the Republicans get their way. We can’t allow the American people to become collateral damage to Washington’s political warfare.”
There are hopes that similarities in both plans mean an agreement can be reached, however there are also concerns that no agreement will start to impact upon markets. Gold reached an all-time high yesterday amid the concerns.
The IMF said that the US must raise the debt ceiling rapidly, as a loss of confidence in US sovereign debt would have severe knock-on effects for the rest of the world.