Debt stakes rising as deadline looms

President Barack Obama. Photo / Getty Images

The stakes are still rising in the game of financial chicken that now threatens the immediate future of the global economy, as President Barack Obama yesterday pressed on with tortuous efforts to negotiate a deal to raise the United States Government's debt limit.

With just over a week to go until the August 2 deadline when the national coffers will slip more than US$14.3 trillion into the red - the maximum allowed under current rules - the White House said yesterday that both main political parties were working around the clock to prevent the US defaulting on its debts.

Treasury Secreyary Timothy Geithner repeatedly said it was unthinkable that either side would let the Government run out of money to pay its bills, since that would be likely to plunge world markets into a state of immediate and potentially catastrophic meltdown.

The Democrats and the Republicans would like an extension of the debt ceiling tied to a long-term plan that would restore order to public finances and prevent the US from losing its triple-A credit rating.

But they are divided on how to achieve that.

Republicans are fiercely opposed to tax rises. Democrats are hostile to cuts in government spending.

Obama's White House is endorsing what he calls an "extraordinarily fair" package that would impose roughly US$3 trillion in cuts, combined with a tax increase worth just under US$1 trillion.

While Americans are reluctant to have cuts to popular Medicare and social security programmes, they are also unwilling to pay more tax at a time when the economy is flatlining and unemployment refuses to drop much below 10 per cent.

- Independent