International pressure grows on both sides as US budget talks stall

US PRESIDENT Barack Obama and top Republicans faced growing pressure at home and abroad yesterday to stop deficit-reduction talks from spiralling out of control and sending shockwaves through the global financial system.

Markets reacted skittishly after the fourth straight day of talks between Obama and congressional leaders hit a new low.

The Democratic president clashed with Republican lawmakers during an acrimonious two-hour session that produced no progress toward a deal, and a leading Republican said Obama walked out of the meeting.

China, the United States' biggest foreign creditor with more than $1 trillion (620 billion) in Treasury debt as of March, urged Washington to adopt responsible policies to protect investor interests.

The foreign ministry comments followed a warning by Moody's Investors Service that it might strip the United States of its gold-plated credit rating in the coming weeks if the $14.3tr limit on America's borrowing was not raised.

Standard & Poor's has also privately told US lawmakers and top business groups that it might cut the rating if the government fails to make any of its expected payments, including social security, even if it makes all of its debt payments, a congressional aide said.

The US Treasury has warned that it will run out of money after 2 August to pay all of the country's bills if a deal is not reached to raise the debt ceiling, which caps the amount of money the United States can borrow.

Talks will continue and Obama is considering a weekend meeting at Camp David, a source familiar with the matter said, but the source stressed that no decision had been made. Two senior administration officials said there were no immediate plans to head to the presidential retreat in Maryland.

The prospect of a cut in the US's AAA credit rating hit stocks prices globally and weakened the dollar. US bond prices fell in New York and yields rose, in part due to the Moody's warning.

Business leaders have also thrown in their powerful voice, calling on Congress to put aside politics and reach an agreement to allow the debt ceiling to be raised.

"It is an imperative that the debt ceiling be fixed and it's an imperative that the United States shows fiscal discipline," said JP Morgan Chase chief executive Jamie Dimon.

"No-one, no-one can tell me with certainty that a default wouldn't cause catastrophe and therefore it's irresponsible to take that chance," he added.

Senate Republican leader Mitch McConnell said: "Republicans will not be reduced to being the tax collectors for the Obama economy."

The talks don't have just fiscal implications.The outcome could also have an impact on the 2012 presidential campaign, where Obama is seeking re-election and Republicans hope to oust him.

Though both sides agree on a need to raise the debt ceiling, they disagree on how to get there.