US Congress

The US avoids a default and government shutdown ends, but more political drama set to come in December when a new sequence of deadlines begins. Wall Street falls, dollar down. Dagong downgrades US credit rating. Analysts unimpressed by deal…

 


Powered by Guardian.co.ukThis article titled “US debt ceiling deal fails to cheer markets – live reaction” was written by Graeme Wearden, for theguardian.com on Thursday 17th October 2013 14.10 UTC

Goldman Sachs shares are also dragging the Dow down, dropping 2.6% after third-quarter results missed forecasts.

Goldman and IBM (-6.5%), along with United Health (-3.3%), are basically responsible for the entire triple-digit drop on the Dow in early trading. Most other stocks are flat, or up a bit.

Updated

A catch-up

Time for a summary of events so far today.

The US has averted the risk of a catastrophic debt default after Congress finally agreed a spending bill to reopen the Federal government and extend the debt limit.

The short-term deal, signed after midnight Washington time (read it here) gives the government the authority to borrow until early February, and also approves budget spending until January 15th. Here’s the key points.

Hundreds of thousands of government workers have been asked to return to their desks, as analysts ponder the political fallout. The IMF also weighed in, urging America to avoid a repeat of the debt ceiling debacle that has loomed over the global economy.

The short-term nature of the deal has disappointed the financial markets, who expect a repeat of recent deadlock and conflict in the months ahead. Most European stock markets have fallen so far today.

Wall Street just opened in the red, with the Dow dropping over 100 points in early trading.

Early this morning, China’s Dagong agency downgraded the US credit rating, from A to A-. It warned that:

The government is still approaching the verge of default crisis.

The dollar has lost ground in the currency markets, amid speculation that the Federal Reserve will continue its stimulus programme at the current rate until March 2014.

On a brighter note, the cost of insuring US debt has dropped, and the prices of short-term Treasury bonds have risen.

Financial experts are relieved that the risk of a US technical default is off the agenda, at least until early 2014. But many expect further brinkmanship and conflict on Capitol Hill in the coming months. Here’s some early comment …and here’s a bit more.

In Washington, Democrat and Republicans will begin discussing long-term budget issues, as part of the ‘budget conference’ agreed in the deal.

Shares drop in New York

Wall Street is open, and shares are dropping in early trading.

The Dow Jones index fell by 116 points in the first few minutes, a drop of 0.7%,x to 15257. The S&P 500 and Nasdaq indices are also in the red, following today’s losses in Europe.

The Dow is being dragged down by IBM, whose shares have fallen 6% after it missed revenue forecasts last night, blaming a slowdown in China.

Why Dagong downgraded America

China’s Dagong credit rating agency has now uploaded its statement, confirming that it had downgraded the US by one notch to A- .

Dagong Downgrades the U.S. Sovereign Credit Ratings to A- Dagong Global Credit Rating Co., Ltd.

As covered earlier, Dagong is alarmed by the Federal shutdown (now finally over), and worried that America is sliding deeper towards the verge of a “default crisis”.

For example:

The partial U.S. federal government shutdown apparently highlights the deterioration of the government’s solvency, pushing the sovereign debts into a crisis status.

The U.S. federal government announced its shutdown on Oct. 1, 2013, a radical event that reflects the liquidity shortage aroused by depleting stock of debts without the increase of new debts, directly resulting in the federal government lack of the funds for its normal function.

The partial U.S. government shutdown is an inevitable outcome of its long-term failure to pay its excessive debts.

Dagong is also concerned that the US national debt will keep rising, and criticised the ‘monetisation’ of US liabilities through the Federal Reserve’s QE schemes.

The agency also pointed to the disfunction on Capital Hill:

As the issue of paying sovereign debts falls into a tool that the parties make use of to realize their own interests, the political environment is unfavorable for eliminating the risk of its sovereign debt default in the long term.

US short-term government debt is being treated as an ultra-safe haven again, with prices rising back to their previous levels after dipping in recent days.

Makes sense, as there’s no danger of America defaulting in October and November.

These price rises have driven down the interest rates on one-month Treasury bills to the lowest rate since the end of September. A bill that matures on 14 November is now yielding just 0.01%, compared to 0.15% yesterday.

Dollar keeps falling

The US dollar continues to slide. It’s now lost one and a half cents against the pound, which is trading at $1.611. The euro has also gained more than one cent, to $1.365

Toby Nangle of Threadneedle Investments warns that the US dollar’s status as the world’s premier reserve currency has taken a knock over the last few weeks:

That a technical default has been averted is to be welcomed, but the public brinkmanship involved in arriving at this temporary extension of the debt ceiling has been unpalatable and serves to further chip away at the U.S. dollar’s status as unquestioned reserve currency.

Threadneedle now expect the Federal Reserve to resist tapering its bond-buying asset purchase scheme until March 2014. More here on the WSJ

Jane Foley of Rabobank agrees that the Fed probably won’t taper until March 2014. This promise of much more quantitative easing is pushing the dollar down, she adds, writing:

Poor old dollar….

The prospect of another uncomfortable debate in government raises the prospect that the Fed could potentially defer tapering until its March policy meeting. As a consequence we will this week lower our USD forecasts across the board; our new forecasts will be published tomorrow.

The weekly US jobs data has just been released, and shows that more people filed new benefit claims than expected last week.

A total of 358,000 new jobless claims were filed in the seven days to October 12, down from 374,000 the previous week, but rather higher than the 335,000 that Wall Street expected.

Here’s some more snaps:

17-Oct-201313:30 – US JOBLESS CLAIMS 4-WK AVG ROSE TO 336,500 OCT 12 WEEK FROM 324,750 PRIOR WEEK (PREVIOUS 325,000)

17-Oct-2013 13:30 – US CONTINUED CLAIMS FELL TO 2.859 MLN (CONS. 2.915 MLN) OCT 5 WEEK FROM 2.902 MLN PRIOR WEEK (PREV 2.905 MLN)

17-Oct-2013 13:30 – US INSURED UNEMPLOYMENT RATE UNCHANGED AT 2.2 PCT OCT 5 WEEK FROM PRIOR WEEK (PREV 2.2 PCT)

17-Oct-2013 13:30 – US LABOR DEPT OFFICIAL SAYS NO NOTICEABLE INCREASE IN NEW CLAIMS FROM NON-FEDERAL WORKERS AFFECTED BY THE GOVERNMENT SHUTDOWN 

The full spending bill is online here as a pdf.

Goldman Sachs cuts bonus payments

Goldman Sachs bonus pool for the last quarter was around 35% shallower than last year, after the bank saw net profits applicable to shareholders, and revenues, drop.

From today’s results statement:

The accrual for compensation and benefits expenses (including salaries, estimated year-end
discretionary compensation, amortization of equity awards and other items such as benefits) was $2.38 billion for the third quarter of 2013, 35% lower than the third quarter of 2012.

The ratio of compensation and benefits to net revenues for the first nine months of 2013 was 41.0%, compared with 43.0% for the first six months of 2013 and 44.0% for the first nine months of 2012. Total staff increased 3% compared with the end of the second quarter of 2013.

The topline net earnings figure from Goldman is $1.52bn, or $2.88 a share, up slightly from $1.51bn a year ago.

Goldman Sachs is pinning its hopes on Congress resolving the long-term uncertainty over America’s budgets, as it releases its third-quarter results which showed a 2% drop in net profits compared with last year.

Goldman reported a sharp drop in net revenues in the last three months, to $6.722bn compared to $8.612bn in the three months to June 30. Weak bond trading activity is one factor.

Lloyd C. Blankfein, chairman and CEO, said:

The third quarter’s results reflected a period of slow client activity.

Still, we saw various signs that our clients are prepared to act on significant transactions and we believe that the firm is well positioned to help our clients accomplish their objectives.

As longer term U.S. budget issues are resolved, we could see an improvement in corporate and investor sentiment that would help lay the basis for a more sustained recovery.

Goldman also reported net profits (applicable to shareholders) of $1.429bn in the three months to 30 September, down from $1.861bn in the previous quarter, and $1.458bn a year go.

UK business secretary Vince Cable has moved another step closer to launching a new business bank, by naming former Standard Chartered exec Ron Emerson as chairman (via Jill Treanor)

Over on Business Insider, Henry Blodget is laying into the 144 Republicans (here’s a list) who voted against the spending bill last night.

Blodget’s not too impressed with the deal (like most people we’ve quoted today):

It’s not a long-term deal, of course.

In fact, it’s not even a medium-term deal.

It’s a two or three month deal.

Which means that the Congress-people elected to lead our country will once again soon be in their favorite position in the world: In front of TV cameras grandstanding about how “the opposition” is destroying the country and demanding that everyone kowtow to their every demand.

But he’s particularly irked that a senior player like Paul Ryan (the Republican Party nominee for Vice President in the 2012 election) could oppose a deal that fended off the default risk, saying:

[Ryan] has a reputation for being fiscally responsible, on account of some budget ideas he has put forward in recent years. Ryan’s vote to send the U.S. into default should delete this reputation for fiscal responsibility once and for all.

Here Are The 144 Republicans Who Voted To Send The U.S. Into Default

A new straw poll from Citigroup suggests America won’t suffer a credit rating downgrade from a ‘big three’ agency (rather than China’s Dagong) in the next six months:

Reuters has peered into the details of the spending bill signed by president Obama shortly after midnight in Washington, and found that it contains many commitments beyond simply extending the debt limit.

Amid the 35 pages are $450m for Colorado flood relief and more than $600m for fire management and fire suppression, plus money to spend up paying benefits to veterans . There’s also an extra $1.2bn for a dam in Kentucky, plus fresh authority for the Department of Defense to continue to support African forces pursuing Joseph Kony and the Lord’s Resistance Army.

There’s also no pay rise for Congress, it says:

Also notable is what the 35 pages do not include.

Congress likely was wise to spell out that its members will not see any pay increase as a result of the deal. The bill states that members will not receive any cost of living adjustments during the fiscal year 2014 that began on October 1.

The East Coast of America is waking up to a new day with a functioning government and no imminent risk of stumbling into a debt default.

Bloomberg TV has been talking about the political ramifications of last night’s deal. Ian Bremmer, Eurasia group president, argued that a ‘grand bargain’ (of sorts) has been carved out:

Bremmer said:

There was a grand bargain – the Republicans have imploded, but [Barack] Obama has frittered away the first year of his second term as president.

Obviously not the long-term agreement on fiscal policy which is needed.

One important element of last night’s deal is that the House and the Senate will set up a ‘budget conference’, which will deliver a report by mid-December.

Peter Cook, Bloomberg’s chief Washington correspondent, says that this panel will meet this morning to start discussing long-term fiscal plans.

They’re going to meet over breakfast… to try and get things off on the right foot.

No surprise that the cost of insuring US government debt against default has fallen this morning.

A one-year credit default swap (which would pay out if America defaulted) has dropped by 7 basis points to 51 bps, data provider Markit reported.

It had hit a two year high of 75 basis points yesterday (meaning it costs $75,000 to insure $10m of Treasury bills).

More importantly, perhaps, this is still more than the cost of a five-year CDS contract (which is trading at 32 basis points).

A one-year CDS contract should be cheaper, given the risk of long-term uncertainty. But in America’s case right now, the uncertainty is still in the short term.

Market update

Three hours into the European trading day, and the main stock markets are all in the red as the US debt ceiling deal leaves investors underwhelmed.

The French and German stock markets have fallen by 0.7%, while over in Moscow Russia’s main index has slid by 1.5%. Britain’s FTSE 100 is slightly lower.

David Madden, IG analyst, reckons that “traders are worried that the US will be downgraded” by Fitch, which two nights ago put America’s AAA credit rating on negative watch.

Madden adds:

Stock markets are not longer celebrating the deal that was struck yesterday between the Democrats and Republicans to avoid an armageddon style default – the focus has now switched to the US credit rating as traders wonder whether or not it will remain unchanged.

The agreement reached has indeed brought about an end to the shutdown and pushed back the debt ceiling talks until February, but investors simply view this as the government hitting the snooze button yet again.

Ratings agency Fitch is edging even closer to lowering the US credit rating, and if other agencies follow suit we could see a repeat of August 2011*.

* - when S&P became the first agency to downgrade the US, after the previous debt ceiling deal was raised.

Updated

The US debt ceiling deal continues to get an underwhelming response in the financial world, with the FTSE 100 still in the red (down 20 points at 6551).

As flagged up at 8.37am, City experts are worried that Congress only extended the US debt ceiling by four months, and only fund the Federal government until January.

Many fear a rerun of last month’s battles, once US politicians sit down to consider longer-term budget .

Luke Bartholomew, investment analyst at Aberdeen Asset Management, calls it a “a hollow victory for Capitol Hill”:

The debt ceiling standoff has ended with the starting gun being fired on negotiations on automatic budget cuts in the form of the sequestration. That could be a good thing if it means some of the more arbitrary cuts are replaced by reasoned ones. But that will require Republicans and Democrats to cooperate which can never be assumed.

The US can take a sigh of relief for now but the New Year could bring a dangerous sense of déjà vu.

“These budget talks have cast a cloud over the US’s international reputation and heaped pressure on the Fed. A decision to taper QE was expected in December but the government shutdown means the Fed is deprived of the very economic data it’s said it will base its decisions on.”

Here’s our latest news story on the US debt ceiling deal, and Christine Lagarde’s warning that America must stop flirting with disaster over its borrowing limits:

US shutdown: IMF chief calls for stability after debt crisis averted

Updated

British Gas hikes prices by 9.2%

Meanwhile, in the UK, British Gas has thrown more fuel on the debate over household energy prices by hiking tariffs by an average of 9.2%.

Parent company Centrica announced that gas prices will rise by 8.4%, while electricity bills will see a double-digit increase of 10.4%.

British Gas’s increase is even higher than the 8.2% increase announced by SSE last week. It comes less than a month after Labour leader Ed Miliband vowed to freeze prizes if he won the next election.

In a statement, British Gas said it was a ‘difficult decision’, and acknowledged that “hard-pressed households” are suffering as real wages keep falling.

Ian Peters, managing director of British Gas Residential Energy, blamed wholesales energy prices and charges imposed by the government.

“I know these are difficult times for many customers and totally understand the frustration that so many household costs keep on rising when incomes aren’t keeping pace.

We haven’t taken this decision lightly, but what’s pushing up energy prices at the moment are costs that are not all directly under our control, such as the global price of energy, charges that we have to pay for using the national grid that delivers energy to the home, and the cost of the Government’s social and environmental programmes.

Updated

Back on those reports that Dagong has downgraded the US credit rating — journalist Alexander Smith has got hold of the full statement, and uploaded it here.

Here’s a flavour:

For a long time the U.S. government maintains its solvency by repaying its old debts through raising new debts, which constantly aggravates the vulnerability of the federal government’s solvency.

Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future.

Dagong should be calling me back at some point to discuss the situation….

Updated

Good economic news in the UK — retail sales rose by 0.6% on a monthly basis in September, twice as fast as expected.

The Office for National Statistics reported that spending on household goods jumped by 3.0% compared with August, while textiles and clothing spending was up 1.2%.

It’s another encouraging development, following yesterday’s drop in the number of people claiming unemployment benefit. It’s also a little curious, given wages continue to lag well behind inflation.

Last night’s deal to avert a US debt ceiling disaster should also cheer the high street, as the crucial festive period approached. Richard Lowe, head of retail & wholesale at Barclays, says Britain could enjoy a good Christmas:

September’s figures bring to a close a summer of good results and good levels of growth in the sector.

Looking ahead, the high street is already filling up with glittering displays to tempt shoppers in the lead up to what we expect to be a strong Christmas.

I’m still trying to find the full statement from Dagong. (its website keeps flashing up error messages).

In the meantime, Reuters’ IFR Markets bureau flags up that the agency also left the US rating on a ‘negative outlook’, suggesting it could cut the A- rating further.

Here’s IFR take, from the Reuters terminal:

Chinese rating agency Dagong has downgraded the United States to A- from A and maintained a negative outlook on the sovereign’s credit.

The agency suggested that, while a default has been averted by a last minute agreement in Congress, the fundamental situation of debt growth outpacing fiscal income and GDP remains unchanged.

“Hence the US government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future,” Dagong said in a press release.

Dagong’s ratings are hardly followed outside of China.

The agency also classifies most countries it follows very differently from major agencies such as Moody’s, Standard & Poor’s and Fitch.

For instance, like the major agencies, Dagong rates Norway Triple A. However, the US was rated A and the United Kingdom has an A+ rating with Dagong, while Moody’s for one, has the UK at and the US at Aaa, the highest level on the New York-based agency’s scale.

Yet, the Chinese agency is not alone in pointing out that the creditworthiness of the United States is not as good as it once was.

Yesterday, Fitch put the Triple A rating it gives to the US under negative watch.In August 2011, Standard & Poor’s downgraded the US to AA+ after a protracted debt ceiling debate in Congress brought the government to the verge of a shutdown.

Apart from the symbolic meaning of the downgrade, though, Dagong’s move is expected to have no effect on markets.

Although, as fastFT points out, the gold price has risen this morning:

Gold prices were higher after the reports circulated, with spot prices up $29 on the day at $1,310 a troy ounce.

Even before today’s reported downgrade, Dagong only classed America as a “High credit rating” nation, with a single-A rating. That’s several notches below AAA.

Why? Because Dagong has long been concerned that America’s national debt is too high, and questioned whether the US is really committed to repaying its creditors (as this Bloomberg story from 2010 shows) .

Updated

Dagong rating agency downgrades US- reports

China’s Dagong credit rating agency just downgraded America’s credit rating, following the short-term deal hammered out last night, according to reports.

Dagong has cut the US rating by one notch to A-, from A.

Dagong has warned that the debacle over the US debt ceiling shows America’s “incapacity” to solve its national debt crisis.

The agency also cited the damage caused by the shutdown on the US economy, saying America would probably have to actually borrow even more money to cover the lost economic activity.

Dagong isn’t one of the Big Three ratings agencies, so this shouldn’t send ripples through the financial markets.

And a cut from A to A- is less dramatic than losing America’s AAA credit rating (as Fitch is now threatening to do, and S&P did in 2011). But it shows the concern in Beijing over the situation.

Updated

After initial relief, the US dollar is also falling this morning. It’s lost half a percent against both the pound (which has risen to $1.603), and the euro ($1.361).

Reuters says the fall is due to traders pondering the damage caused to the US economy ($24bn of lost output, according to S&P)

This could make it harder for the Federal Reserve to slow its quantitative easing stimulus programme (which is pumping $85bn into the US economy each month).

“We would expect this impasse to shave off part of fourth-quarter growth and hurt consumer confidence especially from the government sector,” said Simon Derrick, head of currency strategy at BNY Mellon.

“What this does is push back expectations of Fed tapering to early 2014 and this is dollar negative.”

US debt deal – what the City experts

The broad reaction in the City is that the US deal is a short-term sticking plaster, not a long-term fix. Analysts expect more conflict on Capitol Hill.

 Michael Hewson of CMC Markets predicts another battle in January.

The compromise solution has the government reopened until January 15th, the debt ceiling raised until February 7th and a pledge to negotiate further deficits cuts by December 13th. While this staves off the immediate uncertainty it also means that we have to go through this entire circus again in the New Year.

Talk about kicking the proverbial can down the road, the only difference is we get to use the phrase with respect to the US instead of Europe. Isn’t irony sweet? Oh joy, Happy New Year everybody!

Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, believes the world economy will shake off the impact of the shutdown.

The shutdown of the U.S. government will probably not have helped Q4 GDP. Nevertheless the worldwide economic upturn remains on track going into 2014.

Anita Paluch of Gekko Markets reckons the Federal Reserve won’t rush to slow (or ‘taper’) its stimulus programme:

Good news – the tapering will be delayed, the bad news – the 11th hour deal is not a solution but just a problem postponed.

And Ishaq Siddiqi, market strategist at ETX Capital, says European stock markets are also suffering from weak corporate earnings.

 Overnight, we heard worrying news from IBM who blamed stalling sales in China as the reason for sliding group revenues. eBay meanwhile warned of tougher trading conditions in the US while Black & Decker blamed the US government shutdown as a reason to warn on profits.

In Europe this morning, we’ve another ugly set of earnings from the likes of Metso, Remy Cointreau [luxury sector posting poor numbers – LVMH missed expectations this week] while KPN shares are under pressure after American Movil pulls out its takeover bid for the Dutch telecom company.

European markets open lower as traders see trouble ahead

Shares are falling in early trading in Europe, as the US debt ceiling deal fails to cheer the markets on this side of the Atlantic.

The FTSE 100 has dropped 17 points, to 6553. The German DAX and French CAC are also down by 0.3%.

The City is disappointed that Congress didn’t agree a longer-term deal. Traders are already anticipating another bruising battle on Capitol Hill in early 2014.

Mike van Dulken, head of research at Accendo Markets, says there’s lots of work still to do.

The budget needs to be re-negotiated within 2 months, the government will be re-opened and funded for just 3 months and the debt ceiling issue pushed back for 4 months. The muted market reaction (US & European futures down) suggests them already pricing in a standoff re-run in Dec, Jan and Feb.

Neither party can be proud, although Democrats look to have the upper hand, showing prepared hold firm and blame ultimately being directed at Republicans (or at least factions) refusing to give up on their rejection of Obamacare.

Traders have also been digesting S&P’s estimate that the shutdown cost the US economy $1.5bn each day — that’s a lot of missed business for firms across America, and the globe.

Updated

Overnight, World Bank President Jim Yong Kim summed up the relief in the corridors of power, saying the global economy has “dodged a potential catastrophe”.

IMF: US must end the debt ceiling uncertainty

The International Monetary Fund has welcomed the news that Congress has raised America’s $16.7 trillion debt ceiling before its borrowing authorisation ran out, at midnight tonight.

But IMF chief Christine Lagarde warned that America must break the cycle of uncertainty over its debt limits. She also called for the ‘sequester’ (deep spending cuts) to be replaced by a less harsh method of fiscal consolidation.

Lagarde said:

The U.S. Congress has taken an important and necessary step by ending the partial shutdown of the federal government and lifting the debt ceiling, which enables the government to continue its operations without disruption for the next few months while budget negotiations continue to unfold.

Looking forward, it will be essential to reduce uncertainty surrounding the conduct of fiscal policy by raising the debt limit in a more durable manner. We also continue to encourage the U.S. to approve a budget for 2014 and replace the sequester with gradually phased-in measures that would not harm the recovery, and to adopt a balanced and comprehensive medium-term fiscal plan.

Earlier today our Australian economics blogger, Greg Jericho, held a Q&A on the debt ceiling deal and its implications for the global economy.

Here’s a flavour, on why the debt ceiling should be canned:

The main thing that needs to be done is just abolish the debt ceiling. The market doesn’t give a stuff about it being raised – the bond yields never go up because it is raised, they only go up when Congress threatens to block move for it to be raised.

But I can’t see it happening, purely because there are those who view it as a weapon in their arsenal that they can use to force spending cuts etc. But what today has really shown is that if the other side refuses to budget, the threat to allow a default ends up being an empty one.

Greg Jericho answers your questions on the US debt default crisis – as it happened

From Washington, my colleagues Paul Lewis and Dan Roberts report on how the deal leaves the Republican party licking its wounds:

The US Congress passed legislation to rescue the country from the brink of a looming debt default on Wednesday night, bringing an end to the two-week crisis that has closed large portions of the government and revealed deep divisions in the Republican party.

The bill, a temporary fix that will last only through to the start of 2014, passed easily with broad bipartisan support in the Senate, where Democratic and Republican leaders forged the agreement just hours earlier.

But it was able to pass the Republican-dominated House shortly after 10pm only with the support of Democrats. It laid bare a rupture between moderate and more rightwing Republicans, who triggered the crisis by using their budgetary leverage in what turned out to be a futile effort to undermine Barack Obama’s signature healthcare reforms.

Only 87 House Republicans voted for the bill. The party leadership was opposed by 144 members, including Paul Ryan, the former vice-presidential candidate and a key figure in Congress.

In brief remarks at the White House shortly before the House vote, Obama said he hoped the deal would “lift the cloud of uncertainty” that had hung over the country in recent weeks.

Updated

The state of play

My US colleagues live-blogged all the action from Washington (and quite gripping it was too).

Here’s their closing summary:

• The House and Senate both passed a bill this evening funding the government and raising the debt ceiling until early 2014.President Obama says he will sign it “immediately,” as in, tonight.

• The 16-day government shutdown is over. Government employees will receive retroactive pay for the shutdown period.

• Fiscal talks will now shift to a budget conference between the House and Senate, where a negotiated report is due by mid-December. The talks will be led by the budget committee chairs of each chamber, senator Patty Murray and congressman Paul Ryan.

• President Obama will speak tomorrow about his budget priorities. He claims that he’s willing to discuss “anything.”

• Speaker Boehner, despite passing a bill with mostly Democratic support, is not expected to lose his job. He even got a standing ovation from the House Republican conference today.

Congress passes bill to raise US debt ceiling and end shutdown – live

Updated

Relief as Obama signs spending bill to avert default

Good morning. America is returning to normality this morning after the deadlock in Congress over the US debt ceiling was broken.

Just after midnight East Coast time, president Barack Obama signed legislation to reopen the Federal government, fund its operations until January 15 2013 and extend the country’s borrowing authority for another four months, to February 17.

So, a short-term fix, but one which averts the danger of America defaulting on its debts and triggering a financial panic.

Hundreds of thousands of federal workers, many of whom have been idle for the past 16 days, are now expected to return to work — as businesses count the cost of a two-week hiatus.

The deal leaves the Republican party in some turmoil. The majority of its members in the House of Representatives voted against the bill, underlining the split between radical Tea Party members and moderate Republicans.

Shares on Wall Street roared ahead as the deal neared, and Asian stock markets have mostly risen overnight. Japan’s Nikkei jumped 119 point to 14,586, + 0.8%

We’re not expecting a big rally in Europe this morning, though. Most analysts reckoned Congress would do the right thing eventually. But the fact some members of Congress were prepared to risk a default may have caused lasting damage to America’s pivotal role in the global financial system.

I’ll be tracking the reaction to the deal over the next few hours, along with other events across the world economy, the eurozone, the financial markets and the business world.

Updated

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USA 

Pressure mounting on Republicans to make deal. Investor confidence appears to hold. Senate action expected. Live blog coverage of Congress’ attempt to reopen the US government and steer the world’s biggest economy clear of the default cliff…

 


Powered by Guardian.co.ukThis article titled “US pushed to brink of default as hopes hang on bipartisan Senate deal – live” was written by Tom McCarthyin New York, for theguardian.com on Wednesday 16th October 2013 13.26 UTC

The Senate convenes at noon today. The House is scheduled to meet at 10am. President Obama is scheduled to have lunch with vice president Biden and has meetings today with his secretaries of treasury and state.

Good morning and welcome to our live blog coverage of Congress’ attempt to reopen government and steer clear of the default cliff.

Tuesday was a bad day on Capitol Hill. It began with hopes for a bipartisan Senate deal. Then House Republicans announced they were going to make a deal of their own. ”Whatever proposal we move forward will reflect our emphasis on fairness,” majority leader Eric Cantor said. But there was no proposal to follow. The leadership could not bring the hard-right faction on board.

Today begins with hopes for a bipartisan Senate deal. The Wall Street Journal has published an editorial telling Republicans that enough is enough: “Republicans can best help their cause now by getting this over with and moving on to fight more intelligently another day,” the paper concludes. The conservative National Review reports that GOP members indeed are ready to just “get it over with”.

The markets showed a bit of queasiness in yesterday’s tumble-jumble, but declined to panic.

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Senate leaders join struggle to find passable bill. Stock markets only mildly perturbed. “Reneging on its debt obligations would make the U.S. the first major Western government to default since Nazi Germany 80 years ago,” Bloomberg reports…

 


Powered by Guardian.co.ukThis article titled “US shutdown: Congress reconvenes after weekend of choppy talks – live” was written by Tom McCarthyin New York, for theguardian.com on Monday 14th October 2013 15.31 UTC

Texas Senator Ted Cruz, whose quixotic campaign to “defund” Obamacare was the stick in the spokes that got us here, could – could – cause a default all by himself, Joshua Green reports in Bloomberg BusinessWeek:

How could this happen? Because the Senate can move quickly when necessary–but only by unanimous consent. Let’s say Harry Reid and Mitch McConnell strike a deal today (that’s looking unlikely). Cruz surely won’t like it and has said repeatedly, “I will do everything necessary and anything possible to defund Obamacare.” If he’s true to his word, he could drag out the proceedings past Thursday and possibly well beyond. “If a determined band of nut jobs wants to take down the global economy, they could do it,” says Jim Manley, a former top staffer for Reid. “Under Senate rules, we are past the point of no return–there’s not anything Reid or McConnell could do about it.”

Read the full piece here. There’s no indication that Cruz is that crazy?

“Reneging on its debt obligations would make the U.S. the first major Western government to default since Nazi Germany 80 years ago,” Bloomberg reports.

Updated

Congress won’t act until markets panic, they say. Comforted by the implication that Congress can and will act, markets don’t panic. But Congress won’t act until markets panic. Comforted by…

Anatomy of a deal

How might an eventual deal look? What are the sticking points?

Congress must decide how long to extend the debt limit and how long to fund the government for. Legislators must also decide the level at which to fund government – whether or not to retain the deep “sequester” cuts that took effect on March 1, and for how long.

Republicans would like a shorter debt limit extension in order to maintain leverage in budget negotiations. Democrats would like a shorter-term funding bill in order to accelerate the end of the sequester, which chunked $85bn off the budget between March and October.

At the end of September, Senate Democrats passed conciliatory legislation that would have funded the government at sequestration levels through November – but the bill was rejected by House Republicans. Token Conservative New York Times columnist Ross Douthat retold the history in a recommended Twitter lecture on Sunday:

But now the “original” potential deal to keep government open over the short term at sequester levels is gone, and everything seems back in play. The distance between the two sides on the debt limit extension and the term of the spending bill is a matter of months, NBC’s John Harwood reports:

The Washington Post’s Greg Sargent sees a possible deal by which Democrats would demand the destruction of the debt ceiling as a counterweight to Republican demands on spending:

So here’s what Dems should do. If Republicans refuse to budge off their insistence on lower spending levels, Dems should call their bluff by demanding a permanent disabling of the debt limit as an extortion tool as part of any short-term compromise. (Yes, Republicans will say No. But bear with me.)

If, somehow, a deal is reached this week in the Senate that involves Republicans giving ground on spending levels, Dems should make the push for a permanent disabling of the debt limit a key goal in the next round of formal, long term negotiations.

In the short term, if Dems accept sequester level spending into early next year in exchange for permanent disabling of the debt limit, it would not be an awful outcome.

Read the full piece here.

Senator Joe Manchin of West Virginia, a centrist Democrat, offered a relatively optimistic view of the negotiations this morning on CNN. Talking Points Memo caught the spot:

“I think we’re 70-80% there, putting the extra 20-25% to it,” Sen. Joe Manchin (D-WV) said Monday on CNN.” “When should the (continuing resolution) come due, when should the debt ceiling come due, and does that give that time for the budget conference, the budget committees to sit down and work through this? Those are the details that have to be worked out.”

Updated

Leaders of the World Bank and IMF warned at a meeting in Washington DC Sunday of the disastrous consequences of a US default, the New York Times reports. Some damage has already been done, as borrowing costs for the United States – over the short term, at least – are creeping up.

Christine Lagarde, managing director of the International Monetary Fund, warned of “massive disruption the world over” if the United States plunges into default. At the start of the month she said it is “‘mission-critical’ that [the US default risk] be resolved as soon as possible.”

From the Times report on the Washington meeting:

Participants at the meetings remained on edge, given the gravity of the threat. Ms. Lagarde said “that lack of certainty, that lack of trust in the U.S. signature” would disrupt the world economy.

Wolfgang Schäuble, the German finance minister, issued his own urgent appeal. “The fiscal standoff has to be resolved without delay,” he said in a statement released by the I.M.F.

Read the full piece here.

The Dow Jones Industrial Average opens the day down just a bit, about a half-percent. The bets are still on, for now.

President Obama spoke yesterday with House minority leader Nancy Pelosi, and the two party leaders in the Senate – Democrat Harry Reid and Republican Mitch McConnell – have been holding talks through the weekend that were expected to resume this morning.

Talks between the president and the House Republican leadership – so hopeful as of Friday evening – foundered on Saturday. “No deal” Wisconsin Rep. Paul Ryan told reporters at the Capitol.

The needle they’re collectively trying to thread is legislation raising the debt ceiling that would be acceptable to both Senate Democrats and House Republicans. The current legislation thought to be under discussion would also provide for reopening government and settle a budget through the New Year.

If a catchall deal proves unworkable, Congress may have to pass the debt limit bill separately. However it may actually be easier to pass a catchall deal, because there are more variables and thus more room for negotiation – and compromise.

Guardian Washington correspondent Dan Roberts (@RobertsDan) is tracking the action:

Democrat majority leader, Harry Reid, appeared briefly in the Senate to say he had a “productive and substantive” discussion with Republican Mitch McConnell and was optimistic about a deal, but suspended public proceedings until 2pm on Monday while his backroom talks continued.

The only outward sign of movement from the White House came in a Sunday afternoon phone call with House minority leader Nancy Pelosi, in which President Obama reiterated his insistence on Republicans agreeing to end a government shutdown and extend the debt ceiling before he would negotiate any budget concessions.

Read the full piece here.

Early Halloween.

Good morning and welcome to our live blog coverage of yet another moment of truth in Washington. If the nation’s legislators can’t cut a deal soon – they have a day or two; just exactly how long is a matter for debate – then we get to find out if Warren Buffett was just being a hysterical ninny when he compared default to “a nuclear bomb”.

Negotiations through the weekend failed to produce a deal, or clear a pathway to a deal. Since Friday, talks between House Republican leaders and the White House have fallen apart, and talks between the party leaders in the Senate have sprung up. The House is scheduled to convene today at noon, the Senate shortly thereafter.

The top priority for Congress is to pass legislation that would raise the debt limit sufficiently to fund the Treasury’s accounts payable. They also need to pass a bill to reopen the federal government, which has been partially shuttered for 14 days now (it closed on 1 October). In the current environment, having the government closed is only Code Orange. The debt limit is the Code Red bit.

Investors are holding their breaths to see what the stock market will think of the weekend’s dithering. Knowledgable analysts have suggested that a stock market crash may be the most likely spur to get Congress to actually act. The bond market is closed Monday for the Columbus Day holiday, but stocks are open. The Dow still was relatively unbothered by the crisis on Friday.

The Treasury has said the “extraordinary measures” it has taken since May to cover expenses will be exhausted Thursday, at which point the government will be operating on about $30bn cash on hand and a prayer, with neither expected to last long

Updated

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Chinese finance minister: US must act fast. US Treasury secretary: Congress is ‘playing with fire’. Goldman Sachs: 4.2% wiped off US GDP without debt deal. The US AAA credit rating was downgraded by S&P two years ago after the last debt ceiling standoff…

 


Powered by Guardian.co.ukThis article titled “China warns US over debt ceiling, as markets fall again – live” was written by Graeme Wearden, for theguardian.com on Monday 7th October 2013 14.40 UTC

Oil price drops

The oil price is down today, with a barrel of Brent crude dropping by over one dollar to $108.44.

That doesn’t look to be related to the US standoff, though. Instead, it reflects relief that Tropical Storm Karen weakened over the weekend. That means oil work in the Gulf of Mexico is resuming, having been suspended a few days ago as Karen approached.

China’s warning to America to raise its debt ceiling swiftly comes as the issue becomes intertwined with Congress’s failure a week ago to agree a budget for the new fiscal year (triggering the partial government shutdown).

Terry Morris, senior vice president of National Penn Investors Trust Company in Pennsylvania, says the deadlock is a growing worry, telling Reuters:

Now you’ve got not only the budget but the debt ceiling and time is running out and everybody knows it..

The longer this goes on, the more the uncertainty, the closer the deadline and the more nervous investors are going to be.

Gold has risen to a one-week high, with the spot price gaining 1.3% to $1,327 a ounce.

Updated

Although shares are down on Wall Street, there’s no sign of panic in the US stock markets over the budget and debt ceiling deadlock.

Todd Horwitz of Average Joe Options is telling Bloomberg TV that traders don’t like the uncertainty caused by the ‘blowhards in Washington’, saying:

It’s not a panic selloff, it’s very controlled.

Horwitz added that trading volumes are light at the moment, but could pick up as the debt ceiling deadline approached

The closer we get to the 17th [October], the more action we’ll see.

Wall Sreet open: Dow falls

Shares are falling in New York as the echoes from the Wall Street opening bell fade away.

The Dow Jones industrial average is down 140 points in the first few minutes to 14931, a drop of almost 1%.

The other indices are also down, matching losses in Europe.

FTSE 100: down 51 points at 6403, – 0.8%

German DAX: down 73 points at 8549 ,- 0.85%

French CAC: down 28 points at 4136, -0.67%

Reaction to follow

Business is underway in Washington DC, with White Officials sticking to their position that President Barack Obama will not negotiate with congressional Republicans under the threat of a debt default.

Via Reuters:

“There has never been a period where you have a serious faction or a serious strategy by one political party … to use the threat of default as the main tactic in extracting policy,” White House National Economic Council Director Gene Sperling said at a Politico breakfast on Monday.

On asset class isn’t suffering from the looming debt ceiling today – US sovereign debt.

The price of 10-year Treasury bonds has actually risen this morning, showing stronger demand for America’s debt.

One-month bills are slightly weaker today, but are still changing hands at a yield (or rate of return) or just 0.147%. That doesn’t suggest bond traders are frantically dashing to sell them.

US debt is still being treated as a a place of safety, even though it’s at the centre of this particular storm.

Nick Dale-Lace, senior sales trader at CMC Markets, comments:

Ironically it seems one beneficiary of a risk off morning is US treasuries, with investors continuing to flock to the very bonds that are apparently at risk of default.

The ramifications of a default on bond markets are not clear cut, with much confusion about what the fallout would be given the dependency of the financial world on US debt markets. What are the legal triggers of such a default and are they irreversible? With every minute passed we edge closer to the unknown, and that is rarely good for the markets

US politicians get their chance to heed China’s chiding over the debt ceiling, when Congress returns to work today.

Both the House and the Senate will be in session, with votes scheduled for the afternoon.

However, none of the legislation on the table amounts to the ‘clean’ budget bill (stripped of cuts to the Affordable Care act) which the Democrats are demanding.

CBS’s News Mark Knoller is tweeting the state of play:

China warns US on debt ceiling crisis

China has raised the pressure on the US today, warning that time is running out to raise its debt ceiling.

Vice finance minister Zhu Guangyao told reporters in Beijing that America needs to take decisive steps to prevent hitting its debt limit in a fortnight’s time. The intervention came as European stock markets remained lower, on the seventh day of the US shutdown.

In the Chinese government’s first public comments on the deadlock, Zhu also urged Washington politicians to “learn lessons from history”. A reminder that the US AAA credit rating was downgraded by S&P two years ago after the last debt ceiling standoff.

Zhu said (quotes via Reuters):

The United States is totally clear about China’s concerns about the fiscal cliff.

We ask that the United States earnestly takes steps to resolve in a timely way before October 17 the political [issues] around the debt ceiling and prevent a U.S. debt default to ensure safety of Chinese investments in the United States and the global economic recovery

This is the United States’ responsibility.

As the biggest single holder of US debt, China would be in the front line to suffer if Treasury prices fell – and would obviously be hit if the US were to stumble into a technical default.

Beijing must have watched the deadlock in Washington with growing alarm (yesterday, Republicans continued to demand healthcare cuts as the Treasury Secretary warning Congress was playing with fire).

Analysts were already concerned about the lack of progress (round-up here). with Goldman Sachs warning of drastic cutbacks if America breaches the debt ceiling (details here).

Zhu’s warning added to the jitteriness in the City. Shares remain down across Europe’s trading floors, with the FTSE 100 down 50 points at 6402, a fall of 0.8%. The German and French stock markets are both down around 1%. Here’s a round-up:

Alastair McCaig, market analyst at IG, says there is an increasing ‘fear factor’ in the City as America moves closer to its debt ceiling:

The news that US politicians have again put self-interest ahead of the greater good of the country by failing to make any progress in sorting out the budget or tackling the debt ceiling will have surprised few.

As yet the US debt markets have remained calm but the closer we get to the mid-October deadline the less likely that is to remain the case.

And as mentioned earlier, the US dollar is still down against most major currencies. The pound has gained almost 0.5% to $1.608 so far today.

Updated

US showdown: What the experts are saying

Here’s a round-up of what City experts are saying about the deadlock in America over its budget talks, and the debt ceiling — which the US will hit on 17 October.

Louise Cooper of Cooper City:

As the disaster that is Washington continues, the world needs bond vigilantes to bring the political class to its senses. Sadly thanks to the Federal Reserve’s endless QE, that restraint and imposed market discipline is no longer in place. And that is dangerous. Without the market check, Washington is risking ruin.

So how are these “bond vigilantes” and how do they impose discipline on the ruling classes? They are simply the mass of investors in government debt who by their actions force governments back to the financial straight and narrow. If they think a Nation is spending too much without enough taxation, resulting in excessive deficits and ballooning debt, they will demand a higher interest rate. That is basic finance; higher risk is compensated by a higher return. So as a Nation’s debt rises rapidly, the nation has to pay higher interest rates. So bond yields – borrowing costs – rise. And that is the restraint imposed upon governments – borrowing becomes more expensive the more fiscally irresponsible the government becomes.

That is the check to stop politicians getting their country overly indebted.

And it is the same mechanism with irresponsible monetary policy too – a higher yield is required by investors to compensate for the loss in monetary value from inflation. So bond investors are really important for financially feckless nations, because they that drag the ruling classes back to sensible economic policies (by demanding higher interest rates).

But the problem is that the Federal Reserve is currently buying $85bn of bonds a month, manipulating America’s borrowing costs lower.

The Fed is the biggest player in the markets and if it wants bond yields down then few will bet they will go up. Thus there is no corrective mechanism. Without the Fed’s QE, the current Washington fiasco would have increased America’s borrowing costs and that would have helped to force politicians back to the negotiating table. It now looks likely that the Fed didn’t taper in September as it was concerned about the impact the shutdown would have on the economy. It is also likely that with no non farm payrolls figure being released on Friday, the Fed will not taper in October either.

Implicitly the Federal Reserve is bailing out the incompetency of Washington. The stick has been removed allowing the political class to play wild and threaten default.

Kit Juckes of Societe Generale

I have no vote and hope I am non-partisan in this debate but I think that this is a row about principles as much as about power, which argues for a drawn-out impasse, though the odds still favour last-minute resolution. A good question (from Joe Weisenthal) was what the Republicans would have used to justify the stalemate if Obamacare wasn’t there to argue over.

And while I am sure the GOP could have found a reason for disruptive politics, it also seems clear that Obamacare is too important to the President’s ‘legacy’ for him to compromise on that, while the right wing of the GOP is opposed on principle as much as anything else. But it’s also clear that the Republicans are
‘losing’ the public relations war. I don’t think that merely reflects my Twitter stream or choice of on-line reading.

The big winner of this mess will be Hilary Clinton. And that, in turn, means that a compromise, with tax cuts elsewhere, is likely to be found to get a deal through that allows the debt ceiling to be increased by 17 October.

Jane Foley of Rabobank

The rallying call of Republican House Speaker Boehner over the weekend that it is “time for us to stand up and fight” looks set to commit the shutdown of the US government into a second week.

The vote by Congress in favour of paying the government workers who has been sent home on leave will offset some concerns about the economic costs of the shutdown. Even so, with the October 17 deadline for a debt default looming, investors are likely to become increasingly nervous with every passing day.

Marc Ostwald of Monument Securities:

Shutdown Day 7 is unfortunately the theme for the day, and quite possibly for the week…

While mutterings ahead of the weekend suggested that Boehner said he would make sure that there was no default, and some hopeful whispers of a few Tea Party aligned members of the House softening their stance, positioning as the week starts appears to be even more entrenched.

The backlog of official US economic data is building quite rapidly with little obvious prospect of anything being published this week. One assumes that the end of week G20 meeting of finance ministers and central bank heads may have little else to discuss, though the protests about the US political impasse (assuming it has not been resolved) from other G7 and EM countries will be vociferous.

Elsa Lignos of RBC Europe:

The hard line on both sides has unsurprisingly been taken negatively by risky assets. The Yen and Swiss franc are outperforming, US equity futures are pushing down towards Thursday’s lows, while US Treasuries are still trading sideways.

It is still a case of waiting and watching on developments in Washington. Our US Strategists expect that the longer the government remains dark, the greater the likelihood that the shutdown and debt ceiling issues are resolved together, which would result in a better outcome

Investec Corporate Treasury

Some analysts have estimated that default is likely by November 1st when the Treasury Department is scheduled to make nearly $60 billion in payments to Social Security recipients, Medicare providers, civil service retirees, and active duty military service members.

With such a limited window of time available all eyes will be on the US this week to see if a resolution can be reached. In the meantime expect the US shutdown to dominate currency markets and be prepared for some volatility if a default starts to look more likely.

Updated

Greek budget predicts growth in 2014

Back to Greece, where the government has predicted a return to growth next year after a six-year slump.

The draft 2014 budget, announced this morning by deputy finance minister Christos Staikouras, also forecasts a surplus excluding debt financing costs. This is a crucial target for Athens as it aims to agree further assistance from its international partners.

Reuters has the details:

Greece will emerge from six years of recession next year, its draft 2014 budget projected on Monday, in one of the strongest signs yet that the country has left the worst of its crippling debt crisis behind.

The economy, which has shrunk about a quarter since its peak in 2007, will grow by 0.6% next year thanks to a rebound in investment and exports including tourism, the budget predicted. The economy is set to contract by 4 percent this year. Athens is also targeting a primary budget surplus of 1.6% of national output next year and is on track to post a small surplus this year.

Attaining a primary surplus – excluding debt servicing costs – is key to helping Athens secure debt relief from its international lenders.

“In the last three years Greece found itself in a painful recession with an unprecedented level of unemployment,” Deputy Finance Minister Christos Staikouras said as he unveiled the 2014 budget.

“Since this year the sacrifices have begun to yield fruit, giving the first signs of an exit from the crisis.”

These signs of recovery are encouraging hedge funds to buy stakes in Greek banks (see 9.12am) and fuelling rumours that Greece could swap some debt for new 50-year bond (see opening post).

The budget also shows that Greece will run a deficit of 2.4% (including debt costs). This will push its public debt to 174.5% of GDP, despite investors taking a haircut early last year.

How much damage would be caused if American politicians doesn’t raise the debt ceiling before the October 17 deadline?

Goldman Sachs has crunched the numbers, and told clients over the weekend that the Treasury would be forced into a drastic cutback in spending from the end of October which would wipe 4.2% off annualised GDP.

The research note (from Saturday, but still well worth flagging) showed how the Treasury is on track to hit its borrowing limit in two weeks.

After that point, the amount of money coming into the Treasury will equal only about 65% of spending going out, Goldman said. There are various ways that the US could play for time — such as prioritising some payments over others, or delaying payments altogether.

But officials would soon be forced to implement measures that would hurt growth badly, in a bid to avoid missing a debt repayment and triggering a downgrade to Selective Default status.

Here’s a flavour of the note:

If the debt limit is not raised before the Treasury depletes its cash balance, it could force the Treasury to rapidly eliminate the budget deficit to stay under the debt ceiling. We estimate that the fiscal pullback would amount to as much as 4.2% of GDP (annualized). The effect on quarterly growth rates (rather than levels) could be even greater. If this were allowed to occur, it could lead to a rapid downturn in economic activity if not reversed very quickly.

And more detail….

A very short delay past the October deadline—for instance, a few days—could delay the payment of some obligations already incurred and would create instability in the financial markets. This uncertainty alone could weigh on growth.

But a long delay—for example, several weeks—would likely result in a government shutdown much broader than the one that started October 1. In the current shutdown, there is ample cash available to pay for government activities, but the administration has lost its authority to conduct “non-essential” discretionary programs which make up about 15% of the federal budget.

By contrast, if the debt limit were not increased, after late October the administration would still have authority to make most of its scheduled payments, but would not have enough cash available to do so.

US deadlock hits euro investors

The US government shutdown debacle has hit investor confidence within the eurozone, according to the latest data from German research firm Sentix.

Sentix’s monthly measure of investor sentiment dropped to 6.1, from 6.5 in September. Analyst had expected the index to jump to 8.0, but it appears morale has suffered from the deadlock in Washington.

Sentix reported that investors’ current assessment of the United States, and the assessment of prospects in six-months time, has been noticeably damaged by the budget row and the debt ceiling fears. Its headline index for the US dropped to 16.8, from 24.8 last month.

Overall indices for the emerging markets regions rose, while those surveyed remain optimism for Japan’s prospects.

Over in Italy, Silvio Berlusconi is preparing to request a community service sentence, following his tax fraud conviction in August.

Berlusconi, whose efforts to bring down the Italian government (and reignite the eurozone crisis) failed last week, has now turned his attention to his legal troubles.

From Rome, Lizzy Davies has the story:

“Silent and humble manual tasks” are not something to which Silvio Berlusconi has ever felt naturally drawn. Before big business and politics he sold vacuum cleaners and sang on cruise ships.

Now, however, thanks to the Italian legal system, a very different kind of activity awaits him. His lawyer has said he intends to ask to serve his sentence for tax fraud in a community service placement.

Franco Coppi said that barring any last-minute changes, the former prime minister’s legal team would submit the request to the Milan courts by the end of this week. It would be then up to the judges to decide how to proceed.

More here: Silvio Berlusconi to request community service for tax fraud sentence 

Former Greek minister convicted over money-laundering charges

Court drama in Athens this morning, where a former defence minister has been found guilty of money-laundering.

Akis Tzohatzopoulos was one of 17 defendants convicted after a five-month trial. Associated Press reports that Tzohatzopoulos’s wife, ex-wife and daughter were also found guilty.

Tzohatzopoulos was charged with accepting bribes in exchange for agreeing military hardware contracts, in the 1990s and the early 2000s. The court heard that these kickbacks were laundered through a network of offshore companies and property purchases.

Sentences will be handed down tomorrow.

Greek journalist Nick Malkoutzis reckons this is the most serious conviction of a Greek politician in around 20 years.

In March, Tzohatzopoulos was convicted of corruption charges, after lying on his income statements and hiding luxurious spending. He was jailed for eight years following that case.

Updated

Some interesting stories about Greece this morning. First up: John Paulson, the hedge fund boss who made billions of dollars betting against America’s mortgage market before the crisis began, is a big fan of Greek banks.

Paulson is making a serious move into the Greek financial sector, as investors gamble that the worst of its woes are over.

The FT has the details:

Mr Paulson, best known for his successful wager against the US subprime mortgage market in 2007, praised Greece’s “very favourable pro-business government”.

“The Greek economy is improving, which should benefit the banking sector,” Mr Paulson told the Financial Times.

He confirmed his fund, Paulson & Co, had substantial stakes in Piraeus and Alpha, the two banks that have emerged in best shape from the crisis. “[Both] are now very well capitalised and poised to recover [with] good management,” he said in rare public comments.

More here: Paulson leads charge into Greek banks

The US dollar has also dropped this morning against most major currencies. This pushed the yen up around 0.5%, to ¥ 96.9 to the dollar. That won’t please Japanese exporters, who’d rather see the yen over the ¥100 mark.

America’s stock indices are also expected to drop around 0.8% when trading begins in about 6 hours, Marketwatch flags up.

The head of ratings agency Moody’s reckons America won’t default, even if it ploughs into the debt ceiling this month.

Raymond McDaniel told CNBC overnight:

Hopefully it is unlikely that we go past October 17 and fail to raise the debt ceiling, but even if that does happen, then we think that the U.S. Treasury is still going to pay on those Treasury securities.

Markets drop:

Europe’s stock markets have followed Asia by falling in early trading, as investors fret over the lack of progress over America’s government shutdown.

In London the FTSE 100 swiftly shed 46 points, or 0.7%, with 95 of the companies on the index . It’s a similar tale across Europe’s markets, with Germany’s DAX down 0.85% and the French CAC shedding 0.75%

Mike van Dulken of Accendo Markets sums up the mood in the City:

Sentiment is still dampened by USuncertainty as the partial shutdown moves into its second week and the more troubling debt ceiling of 17 October nears. How long will this drag on for? Only the politicians know.

The congressional stalemate shows no signs of progress with House Speaker Boehner adamant that a clean spending bill will not be approved while Treasury Secretary Lew says congress is playing with fire putting the nation’s sovereign reputation at risk, on top of President Obama’s highlighting of the potential impact on Q4 GDP.

It all adds up to another sea of red on the European markets:

Updated

World Bank cuts China growth forecasts

America’s deadlock isn’t the only issue worrying the City today. The World Bank has warned that East Asia’s economic growth is slowing as it cut its GDP forecasts several nations, including China.

In a new report, the Bank said weaker commodity prices means weaker growth in the region. It also urged Chinese policymakers to tackle the consequences of recent loose policy and tighten financial supervision.

Here’s a flavour:

Developing East Asia is expanding at a slower pace as China shifts from an export-oriented economy and focuses on domestic demand,” the World Bank said in its latest East Asia Pacific Economic Update report.

“Growth in larger middle-income countries including Indonesia, Malaysia, and Thailand is also softening in light of lower investment, lower global commodity prices and lower-than-expected growth of exports,” it added.

It now expects the Chinese economy to expand by 7.5% this year, down from its April forecast of 8.3%. For 2014, the forecast is cut from 8% to 7.7%.

Full story here: World Bank cuts China growth forecasts

US deadlock continues to worry the markets

Good morning, and welcome to our rolling coverage of the financial markets, the world economy, the eurozone and the business world.

It’s the seventh day of the US government shutdown, and the lack of progress in Washington continues to cast a shadow over the financial world.

Shares have slipped in Asia overnight; in Japan, the Nikkei shed another 1.2%. European markets are expected to fall again.

America seems no closer to a solution to the deadlock, nearly a week after the Federal government began shutting services and sending workers home. It is, though, closer to its debt ceiling — the US is still on track to hit its maximum borrowing limit of $16.7bn on 17 October.

Yesterday, Treasury secretary Jack Lew warned that America would default if the ceiling isn’t raised. Congress, he said, was ”playing with fire”.

Lew said:

I’m telling you that on the 17th, we run out of the ability to borrow, and Congress is playing with fire.

But the Republican-controlled House of Representatives hasn’t blinked — continuing to demand concessions from President Obama.

House speaker John Boehner was defiant last night, saying his side would “stand and fight” for concessions on issues like healthcare reforms.

Boehner told ABC television:

You’ve never seen a more dedicated group of people who are thoroughly concerned about the future of our country.

The nation’s credit is at risk because of the administration’s refusal to sit down and have a conversation.

So the deadlock continues, with investors pondering whether this impasse really could turn into a catastrophic debt default.

Stan Shamu of IG explains that traders are more nervous than late last week:

While Friday’s modest gains in US equities were driven by a glimmer of hope that leaders are getting closer, this seems to have waned over the weekend.

House speaker John Boehner was quoted as saying he wouldn’t pass a bill to increase the US debt ceiling without addressing longer-term spending and budget challenges. This has really rattled markets and is likely to result in further near-term weakness for global equities.

Not much on the economic calendar today, although we do get the latest eurozone reading of investor confidence at 9.30am BST.

In the UK, the row over the Royal Mail privatisation continues, with critics warning that it’s being sold off too cheaply.

While in Greece, there were reports on Saturday that Athens is considering swapping some bailout loans for new 50-year bonds, as part of a third aid package.

Reuters had the story: Greece mulls swapping bailout loans with 50-year bond issue: source

I’ll be tracking all the action through the day….

Updated

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House and Senate fail to reach deal before deadline. Estimated 800,000 federal workers told to stay at home. National parks and museums closed, Nasa affected. Signs of splits among Republicans over tactics. The President plans to make a statement today…

 


Powered by Guardian.co.ukThis article titled “US government shutdown begins as Congress fails to reach deal – live” was written by Tom McCarthy in New York, for theguardian.com on Tuesday 1st October 2013 16.12 UTC

Guardian Washington correspondent Paul Lewis (@PaulLewis) is in the streets of Washington DC, a city in which the government is not just the main employer, but the lifeblood of the city. The impacts of the shutdown were immediately visible, Paul writes:

By mid-morning, downtown Washington DC had the throng of a busy lunchtime, as furloughed workers from all the major government buildings trickled out onto the streets after closing down their offices.

Everywhere from obscure government agencies to the White House was operating on a slimmed-down staff, with all so-called ‘non-excepted’ employees ordered to return home after turning up to work on Tuesday morning.

DC’s mayor, Vincent Gray, immunised many staff working for the city’s government from the shutdown, by declaring them all ‘essential’ workers, a legally contentious measure. But it at least kept the city movement, and guarded America’s capital from less sightly impacts of the last shutdown, in the 1990s, when uncollected trash piled up on the street.

Later we’ll have Paul’s interviews with tourists and federal workers talking about how the shutdown is affecting them.

Updated

Veterans of World War II have stormed their own memorial on the National Mall, barricades be damned, reporter Leo Shane III of Stars and Stripes tweets:

Honor flight vets just knocked over the barriers at the WWII memorial to get inside, #shutdown or no.

No sign of folks leaving. The vets have control of the memorial. #shutdown

John McCain may be trying to make a point by publicizing polling showing Americans oppose the GOP strategy of tying the shutdown to health care cuts, but most national polls on who gets blamed are rather useless in understanding what’s going through the mind of the House GOP, Guardian polling analyst Harry J Enten (@ForecasterEnten) writes.

Harry argues that, district-for-district, Republicans really aren’t vulnerable to voter outrage in midterm elections in 2014 because the districts are rigged:

While there are a number of reasons why House Republicans were willing to shut down the government, no answer is probably as satisfying as the fact that majority of House Republicans don’t live in districts that look anything like the rest of the nation. Thanks to urban packing and gerrymandering, Republicans don’t have to worry about losing to a Democrat.

The average vote share for President Obama in 2012 in Republican House districts was only 40.4%. Only 17 members of the Republican House caucus are from districts that voted for Obama in 2012. More than half of Republicans in the House come from districts that are 10 points more Republican than the nation as a whole. The average Republican district is over a 11 points more Republican than the nation.

The thing that most worries most members is likely a primary challenge, not a general election. The fact that more Republicans support a shutdown to stop Obamacare, as Quinnipiac found, is what’s most important for them.

That analysis leaves open the question on whether blowback from the shutdown represents potential damage to a party’s national brand, with consequences for membership, fundraising, turnout, activism, public support in hard policy fights and more.

Shut down: Tweets from Voyager 2. 

Not to be confused with Voyager 1, which recently entered interstellar space. Voyager 2 is only 15.37bn km away, according to the Nasa site that tracks it, which interestingly is still online here.

Updated

Shut down: the US Census Bureau online. 

You can’t visit the web site here, but you can read a shutdown notice.

(h/t @kennelliott)

Updated

Senator Mike Lee of Utah, who with Ted Cruz of Texas led the charge to tie stopgap spending legislation to changes to Obamacare, is delivering a speech on the Senate floor calling for a focus on people whose livelihoods will be damaged by the government shutdown. “I want to focus our attention in the coming days and hours on those people,” Lee says, gravely.

It turns out however that mostly Lee wants to continue his critique of the Affordable Care Act. “I’d like to turn for a moment to people who are and for a number of months have been already [hurting],” he says. “Obamacare happens to be the No.1 job-killer in the country.”

Threatened by shutdown: airport efficiency(!).

Here’s a question from the comments:

Can someone tell me will airport be affected? Ie will take ages to get through security?

Answer, in short: Yes, expect some delays, but security will remain tight. The Transportation Security Administration, part of the department of Homeland Security, is expected to furlough certain nonessential employees, but those do not include most screeners. Air traffic controllers will report for work as usual.

John McCain, Republican of Arizona, argued Monday against the House Republican shutdown strategy, telling the House to accept fate and pass a “clean” spending resolution.

This morning McCain indulges in a preliminary bit of “I told you so,” directed at Republican colleagues:

From the Bloomberg story:

By 72 percent to 22 percent, Americans oppose Congress “shutting down major activities of the federal government” as a way to stop the Affordable Care Act from going into effect, the national survey from Quinnipiac University found. [...]

A majority of the public, 58 percent, is opposed to cutting off funding for the insurance program that begins enrollment today. Thirty-four percent support defunding it.

Note that the poll featured in the story McCain links to is from last week; while the Bloomberg story is from today, it does not reflect new polling from today.

Updated

Here’s the tabloid view, then and now:

Shut down: Freedom of Information Act requests.

The justice department claims it can’t meet FOIA deadlines in an Electronic Frontier Foundation lawsuit over phone metadata collection because of the shutdown, Politico’s Josh Gerstein reports:

Just hours after the partial government shutdown kicked in, Justice Department lawyers filed a motion Tuesday morning with a federal judge in Oakland, Calif. seeking to postpone all deadlines in connection with a suit brought by the Electronic Frontier Foundation.

The motion submitted to U.S. District Court Judge Yvonne Gonzalez Rogers (and posted here) says the government will be unable to continue reviewing documents for release because both DOJ lawyers and intelligence community personnel involved in the process are being furloughed.

Read the full piece here.

Senate minority whip John Cornyn, Republican of Texas, says Democrats are “whistling past the graveyard” in asserting that the Affordable Care Act is not negotiable:

“This is the law of the land. It’s perfect. Couldn’t be better,” Cornyn, on the Senate floor, ridicules his Democratic colleagues as saying. “That’s like whistling past the graveyard.”

Then Cornyn accuses Democrats of engineering the shutdown because polls show Republicans will take the blame:

They’re looking at polls…They’re willing to risk shutdown of the federal government just to gain political advantage… The Democrats have doubled down on their strategy, hoping to gain political advantage at the expense of people hurt.

Part of the difficulty this morning for 2m federal workers is that many did not find out until they showed up for work as usual whether they were part of the “essential” core that would be kept on the job. Some were told to stay. Others were sent home.

The Guardian’s Paul Lewis (@PaulLewis) and Dan Roberts (@RobertsDan) are watching the shutdown unfold in Washington:

Some federal workers were reportedly instructed to switch off their BlackBerry smartphones to prevent them from working remotely, a disciplinary offence.

From 7am, forlorn-looking commuters could be seen heading to government buildings and agencies across Washington DC, where they would learn their fate. The city, where the government is a huge employer, will feel the impact of the federal shutdown more acutely than anywhere else in the US. The White House said it estimates a one-week shutdown would cost the wider US economy $10bn.

Read the full piece here.

Dan also has the inside story of how the shutdown played out in the halls of Congress last night:

Unfortunately, much of Washington acted as if it had seen this movie before. The metaphorical tumbleweed blowing down the corridors of Capitol Hill reflected not a fear of being caught in the crossfire, but a cynical war-weariness that left many lawmakers on the sidelines until it was too late. After three years of similar standoffs over the federal budget that were resolved at the last minute, no one could quite believe that this one would finish with shots fired.

Read the full story here.

The Senate has killed the House GOP request for a budget conference, again along party lines, 54-46.

Senate majority leader Harry Reid is on the floor of the Senate decrying the House request as a cynical 11th-hour ploy meant to portray the GOP as being serious about making a budget deal when in fact the party has, Reid says, ignored six months’ worth of Senate requests for a conference. Here’s Reid:

Sen. Murray [Patty Murray, D-Washington, budget committee chairwoman] has asked to go to conference 18 times. [McCain] has asked eight times himself. This has gone on for six months.

But it’s a clock tick past midnight… Boehner demanded the very conference they shunned us with for six months.

This display I hope would be embarrassing for House Republicans and Senate Republicans… what a deal!

If the House passes the piece of legislation they have over there… to reopen government, we’re happy to go to conference – why wouldn’t we? We’ve been asking to do that for months and months.

Updated

Senator John McCain, Republican of Arizona, sees the shutdown as a boon to the president because it distracts from the administration’s woes elsewhere:

“Obamacare is going to have a lot of problems in its rollout… the president’s poll numbers are falling in every category,” McCain told MSNBC. “Yet the story to the American people is Republicans are fighting Republicans – that’s not helpful.”

The president plans to make a statement today at 12.25pm ET in the Rose Garden, the White House advises.

As the two parties try to reach a spending agreement, they also are trying to pin the blame for the shutdown on the other side. In a statement in the briefing room yesterday afternoon the president said Republican maneuvers resulting in a government shutdown would be the “height of irresponsibility.” Expect the president to expand on that theme this afternoon.

Last time the government shut down, the Republican Congress caught the blame and the Democratic president emerged the stronger. That fact is not lost on the Obama administration, which is using president Clinton’s playbook, Bloomberg reports:

Five administration officials, including Treasury Secretary Jack Lew and budget director Sylvia Burwell, were central figures during the shutdowns of 1995 and 1996. That two-stage battle pitted a House Republican majority against Democratic President Bill Clinton and resulted in a public relations defeat for the Republicans.

Now, Like Clinton, Obama is casting his Republican rivals as partisan warriors willing to put the country’s economic future at risk to score political points with their base.

While Clinton chided Republicans for putting “ideology ahead of common sense” in a 1995 address, Obama told reporters yesterday that “House Republicans continue to tie funding of the government to ideological demands.”

Read the full piece here.

Updated

Are you a federal employee forced to stay home because of the shutdown? Is one of your family members an essential employee who has to work without pay? We want to hear from you:

* Where do you work? What is your role?

* What have your supervisors told you to expect in coming weeks? Please be specific. How will furloughs or payment delays affect you and/or your family?

* Is there anything you’d say to members of Congress? to President Obama or House Speaker John Boehner? Do you see the shutdown as necessary? Is there a silver lining?

Please share your views in the comments or reach out to us directly at ruth [dot] spencer [at] theguardian [dot] com. We’ll be featuring your comments here. Thanks for writing!

Welcome to our live blog coverage of the partial government shutdown, which went into effect at midnight. America is waking up to shuttered parks, silent call centers for veterans’ services, empty Pentagon offices and skeleton crews in White House and congressional offices. It’s the first government shutdown in 17 years.

The president signed a bill late on Monday defending against one of the most painful effects of a shutdown: the bill ensured there would be no delay in delivering paychecks to active-duty military personnel. The core services of other big government programs, including Medicare and social security, were expected to operate as usual.

The House and Senate played ping-pong on Monday with stopgap spending resolutions that would have kept the government open if they were able to agree on one. The last House resolution retained delays in the rollout of the Affordable Care Act that the Senate leadership had made clear would be rejected. The resolution was rejected, and at about 11.40pm ET the office of management of the budget sent out a memo ordering agencies to “execute plans for an orderly shutdown due to the absence of appropriations.” Read Jim Newell’s play-by-play of last night’s action here, and Graeme Wearden’s early-morning updates here.

Just before the shutdown, House Republicans made a significant move on the overall budget issue, electing to join a conference with the Senate to cut an actual budget deal, a step the House leadership had been resisting. Senate majority leader Harry Reid said he would not bargain over the current spending measure at a budget conference.

Updated

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Fiscal cliff deadline just hours away as Congress returns. No agreement has been reached between White House and Republicans in early morning talks. Latest deal to raise taxes on incomes over $450,000. Harry Reid says: ‘We really are running out of time’…



Powered by Guardian.co.ukThis article titled “Fiscal cliff deadline looms as talks on a deal continue – live updates” was written by Richard Adams in Washington DC, for guardian.co.uk on Monday 31st December 2012 17.19 UTC

12.19pm ET

Republican senator John Cornyn of Texas tweets:

11.50am ET

This may be a good sign. Or a bad sign. It’s too soon to say.

Updated at 11.52am ET

11.44am ET

Politico takes a metaphor and mixes it to death:

The last-ditch horse-trading underscored the urgency of the situation….

Old Politico saying: never switch a gift horse in the ditch.

11.22am ET

GOP senator: ‘There has been a lot of progress’

Senate minority whip Jon Kyl is making happy noises to Reuters:

Senator Jon Kyl on Monday said a “lot of progress” has been made in talks to avert the “fiscal cliff” but he cautioned that it is unclear if the progress will spur legislation the Senate can vote on before a midnight deadline when taxes and spending cuts kick-in.

“There is no agreement yet,” Kyl said. “Conversations are still ongoing. There has been a lot of progress.”

Then Kyl has a little joke at Reuters’ expense:

Asked how long talks could go on, Kyl said: “I guess until 11.59.”

Updated at 11.24am ET

11.06am ET

Harry Reid: ‘discussions continue as I speak’

The Senate has just got underway, and here’s the Democratic majority leader Harry Reid:

Discussions continue today, Reid notes:

There are a number of issues on which the two sides are apart but discussions continue as I speak….

We really are running out of time, Americans are threatened with a tax hike in a few hours.

That was short and sweet from Reid. And believe it or not, that tells us a lot, because Reid didn’t bash the Republicans as he has done on every available occasion in the last week.

Equally significant: Mitch McConnell didn’t take the floor after Reid.

So a deal is on the way, is the bet.

Updated at 11.09am ET

11.00am ET

This one is for total US politics geeks only:

If you know what that means, you’ll know what that means. If you know what I mean.

Updated at 11.01am ET

10.57am ET

Deal is on the cards, reports ABC News

Are Joe Biden and Mitch McConnell getting close to a deal? ABC News thinks so:

An emerging tentative agreement would extend current tax rates for households making $450,000 or less; extend the estate tax at its current level of 35% for estates larger than $5m; and prevent the Alternative Minimum Tax from hammering millions of middle-class workers, sources said.

The deal would also extend unemployment benefits set to expire Tuesday and avert a steep cut to Medicare payments for doctors.

Both sides also seem willing to delay by three months automatic spending cuts to defense and domestic programs, the sources said, setting the stage for continued fiscal debate in the next few months tied to the debt ceiling.

Still have to get it through the House, though.

Updated at 10.57am ET

10.48am ET

The ‘dairy cliff’ explained

Bloomberg has some background on the little-known ‘dairy cliff‘, which is triggered by the failure to pass a new farm bill of agricultural support and subsidies, as well as food stamps:

The most recent farm law, enacted in 2008, expired after attempts to pass a new five-year proposal failed. Without that plan, agricultural programs automatically return to rules passed in 1949, the basis of all subsequent legislation.

The effects of that transition have been delayed because of the growing seasons of different crops. Dairy production, a year-round business, is the first major commodity affected. In November, the US Department of Agriculture put the price of a gallon of fresh whole milk at just under $3.54.

Under President Harry Truman’s farm policy, the government bought supplies of a product until its price reached “parity” with the cost immediately before World War I. Adjusted for a century of inflation, the Agriculture Department’s milk-support price today would be $39.08 per hundred pounds, more than double the dairy futures price in Chicago on December 28.

Updated at 10.49am ET

10.41am ET

McConnell and Biden have early talks

There’s a flurry of fiscal cliff stuff going on, as the House starts its session, and the Senate prepares to get going at 11am, with comments expected from majority leader Harry Reid and (presumably) minority leader Mitch McConnell.

Politico is reporting on optimistic signs of a deal emerging:

Senate Minority Leader Mitch McConnell and Vice President Joe Biden engaged in furious overnight negotiations to avert the fiscal cliff and made major progress toward a year-end tax deal, giving sudden hope to high-stakes talks that had been on the brink of collapse, according to sources familiar with the discussion.

It also says that conversations between Biden and McConnell occurred early Monday morning, at 12.45am and 6.30am, and quotes a McConnell spokesman:

The leader and the VP continued their discussion late into the evening and will continue to work toward a solution. More info as it becomes available.

Updated at 10.41am ET

10.10am ET

‘Dairy cliff’ approaches sell-by date

Aside from the fiscal cliff, what about the so-called “dairy cliff,” the possibility of a sharp hike in the price of milk if a new farm bill isn’t passed quickly?

There was some positive movement over the weekend, when leaders in both parties on the House and Senate agriculture committees agreed on a one-year extension of the previous farm bill.

But hold on, what’s this? Via AP:

A spokesman for House Speaker John Boehner said Sunday that Republican leaders had not decided how they would proceed on the farm extension, though a vote could come as soon as Monday.

Oh well, so much for that outbreak of bipartisanship. It turns out the House GOP is also considering two other extensions: a one-month extension and an even smaller bill that would merely extends the current policy that expires on 1 January.

Update: ‘Diary cliff’? Yes we only have a few hours left to get our 2013 calendars (hat tip: @Mattywills). Anyway, dairy cliff…

Updated at 10.31am ET

9.54am ET

Is Obama caving in to the Republicans?

Is President Obama giving away too much? In New York magazine, Jonathan Chait fears that Obama is caving in to the Republicans on taxes, and wants a stiffer backbone:

[Obama] is allowing Republicans to whittle down the sum by essentially threatening to shoot themselves in the head. And this is the most ominous thing about it. The big meta question looming over Obama’s term is whether he has learned to grapple with Republican political hostage-taking. Hostage-taking is not simply aggressive or even irrational negotiating. It is the specific tactic of extracting concessions by threatening to withhold support for policies you yourself endorse, simply because your opponent cares more about the damage.

9.49am ET

The effects of the budget cuts contained within the fiscal cliff could be felt in short order on the US military, as the Associated Press reports:

A senior defense official said if the sequester were triggered, the Pentagon would soon begin notifying its 800,000 civilian employees that they should expect some furloughs — mandatory unpaid leave, not layoffs. It would then take some time for the furloughs to begin being implemented, said the official, who requested anonymity because the official was not authorized to discuss the internal preparations.

9.43am ET

Deal or no deal? Where the two sides differ

So where are the two sides at this point? Based on various reports, here’s where things stood at the end of the weekend in talks between Senate republicans, Democrats and the White House.

• Income tax: Senate Republicans propose higher taxes on incomes above $450,000. Democrats propose tax rises on incomes over $360,000

• Estate tax: Republicans want to tax inheritances valued above $5m at 35%. Democrats want to tax inheritances above $3.5m at 45%

• Budget cuts: a “pause” before implementing the across-the-board cuts demanded by the sequester – Democrats in favour, Republicans oppose

• Spending: Proposals to avoid a cut in Medicare payments to doctors and extend benefits for the long-term unemployed – Republicans say they should be paid for through budget cuts elsewhere

• Alternative minimum tax: Democrats want any deal to include a permanent revision to stop the AMT hitting middle class taxpayers

Updated at 9.48am ET

9.30am ET

With only hours remaining until midnight, can America’s political system avert the fiscal cliff of tax hikes and sweeping budget cuts before 2013 is ushered in?

Congress reconvenes this morning after hopes of a deal between the Democratic and Republican leaders in the Senate over the weekend, came to naught. The talks faltered after Republicans threw up a string of objections – leading the Republican Senate minority leader Mitch McConnell to open a new line of dialogue with vice president Joe Biden.

Harry Reid, the Senate majority leader, left the field yesterday evening, telling journalists “Talk to Joe Biden and McConnell” as his farewell remark.

Congress went home for the night soon after. But there was some progress, based on reports leaking out of the two caucuses. The New York Times reported:

On some of the biggest sticking points, the two sides are now inches apart. Barely a week after House Republicans refused to vote to allow taxes to rise on incomes over $1m, Senate Republicans proposed allowing tax rates to rise on incomes over $450,000 for singles and $550,000 for couples. Democrats countered with a proposal to extend expiring Bush-era tax cuts up to $360,000 for singles, $450,000 for couples. For both sides, that meant major movement. Mr Obama has been holding firm at a $250,000 threshold.

Despite that shift, Republicans first insisted that a new measure of inflation, known as “chained CPI”, be used to calculate future – and slower – increases in social security payments. Democrats rejected that but the Republicans produced a new objection, based on the putative deal’s delay of the severe budget cuts that form one half of the feared fiscal cliff.

President Obama weighed in via an appearance on NBC’s Meet The Press on Sunday morning, blaming Republicans intransigence for their failure to reach a deal:

We have been talking to the Republicans ever since the election was over. They have had trouble saying yes to a number of repeated offers.

We’ll be bringing you all the action or inaction as the clock ticks down. It could be a late night.

Updated at 10.59am ET

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Barack Obama wins re-election over Mitt Romney and will continue to be President for a second term. Florida votes still being counted with margins close but leaning toward Obama. Democrats hold Senate majority, while Republicans retain the House…



Powered by Guardian.co.ukThis article titled “Republicans contemplate Romney loss as Florida tallies votes – US politics live” was written by Tom McCarthy, for guardian.co.uk on Wednesday 7th November 2012 14.03 UTC

1.36pm:

The morning after

Good morning and welcome to our day-after politics live blog. President Barack Obama is still going to be president on January 20, 2013. Here’s a summary of where things stand:

• Republicans are analyzing Governor Mitt Romney’s loss even as the vote-counting continues in Florida. Florida’s secretary of state is named Ken Detzner and the department’s web site is here.

• 538 pollster Nate Silver projected that President Obama would take Florida, if anyone puts any stock in what Nate Silver says. Without Florida the electoral college count stands at 303 Obama, 206 Romney.

Democrats held on to their Senate majority of at least 53 seats, assuming that Maine senator-elect Angus King, a former governor and an independent, caucuses with them. He supports same-sex marriage and opposes drilling for oil in the Arctic.

• For the first time ever, same-sex marriage was approved by an electorate – and not just in one state but in four. Previously same-sex marriage had been sanctioned by state legislatures but had never passed a popular vote. Last night it did in Maryland, Maine, Minnesota (where a ban was defeated) and Washington.

Marijuana legalization initiatives passed in Colorado and Washington.

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