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Debt ceiling: Fitch puts US credit rating under review US debt ceiling: Senate takes command as House plans fail
(about 2 hours later)
Ratings agency Fitch has put the US AAA credit rating under review for a downgrade as the deadline to raise the US borrowing limit draws closer. Frantic US political attempts to avert a federal debt default have pivoted back to the Senate after plans in the House of Representatives collapsed.
The move comes after Democrats rejected a plan by the Republican-led House of Representatives as an attempt to appease a small group of conservatives. Upper chamber leaders were said to be working through the night on a deal to raise the US borrowing limit and end a partial government shutdown.
Hours later, House Republicans revised their proposal and planned to put it to a vote, but even that was called off. Amid the congressional disarray, a top ratings agency warned of a possible downgrade in US creditworthiness.
The US must raise its $16.7tn (£10.5tn) debt limit by Thursday or risk default.The US must raise its $16.7tn (£10.5tn) debt limit by Thursday or risk default.
"The [Fitch] announcement reflects the urgency with which Congress should act to remove the threat of default hanging over the economy," said US Treasury spokeswoman Brandi Hoffine. Politicians, bankers and economists have warned of global economic consequences unless an agreement can be reached.
As the House bill faltered, Democratic and Republican leaders in the Senate announced on Tuesday evening that they were reopening talks. The Democratic-controlled Senate took control on Tuesday night, working on a bipartisan deal that aides said would extend the federal borrowing authority until 7 February and fund the government through to mid-January.
Republican retreat 'Deadbeat nation'
While Fitch said it expected the debt limit to be raised soon, it added that "political brinkmanship" and "reduced financing flexibility could increase the risk of a US default". Senate Democratic leader Harry Reid and his Republican counterpart, Mitch McConnell, were expected to brief their colleagues on Wednesday.
During a previous fiscal standoff on Capitol Hill in 2011, another credit rating agency, Standard & Poor's, downgraded the US rating from AAA to AA+. But even if any Senate compromise can overcome procedural hurdles in that chamber, it remains unclear if it would attract enough votes from Democrats and pragmatic Republicans in the House to pass before the 17 October deadline.
The New York Stock Exchange ended Tuesday down 133 points. Democratic Senator Barbara Mikulski told her colleagues in the chamber the US was "hours away from becoming a deadbeat nation, not paying its bills to its own people and other creditors".
The latest budget battle began 15 days ago when conservative House Republicans brought about a partial government shutdown by demanding that President Barack Obama defund or delay his signature healthcare overhaul. The Senate's negotiations were put on hold earlier on Tuesday to allow House Republicans time to come up with a deal.
The party subsequently retreated from that idea and by Tuesday morning House Republicans were seeking relatively minor changes to the 2010 Affordable Care Act. But the lower chamber's efforts ended in chaos after two proposals floated in the space of a few hours were torpedoed from right and left, forcing the leadership to shelve plans for a vote.
But following swift condemnation from the White House and Democrats, they amended their plan later in the day to strip it of even those proposals. Embattled Speaker John Boehner failed to rally fractious rank-and-file Republicans behind either plan.
The new House plan would reopen the government until 15 December and raise the debt ceiling through to 7 February. Amid the legislative turmoil, the Fitch credit agency warned it could downgrade the US government's AAA rating, while the New York Stock Exchange ended the day down 133 points.
'A bad deal' On Tuesday afternoon, President Barack Obama told a local ABC broadcaster he expected the debt ceiling impasse to be resolved eventually.
But a rules committee postponed a hearing that would allow the bill to reach the floor of the chamber.
It is not clear if the plan has enough votes among rank-and-file conservatives to pass in the lower chamber.
Among those resisting was Republican Representative Joe Barton, who told the Associated Press on Tuesday any plan to end the crisis must contain deep spending cuts to win his vote.
"No deal is better than a bad deal," Mr Barton said.
And differences with an emerging bipartisan Senate plan could complicate prospects for final passage before 17 October, when the US Treasury says the government will run out of money to pay its bills.
'We have lost'
On Tuesday afternoon, Mr Obama told a local ABC broadcaster he expected the debt ceiling impasse to eventually be resolved.
But he added: "I think the House Republicans still believe they can get concessions for doing their job."But he added: "I think the House Republicans still believe they can get concessions for doing their job."
The White House has refused to negotiate over the health law, pointing out that it passed in 2010, was subsequently validated by the Supreme Court, and was a central issue in the 2012 presidential election, which Mr Obama won handily. Hardcore conservatives in the lower chamber triggered the budget warfare 16 days ago, forcing the first government shutdown in 17 years by demanding that Mr Obama gut his signature healthcare overhaul.
Republican Senator John McCain, who was the party's 2008 presidential nominee, was quoted by the New York Times as saying: "Republicans have to understand we have lost this battle. By Tuesday afternoon, the House leadership had retreated to a relatively meagre plan to deny discounts for lawmakers and their staff members on health insurance policies.
"As I predicted weeks ago, that we would not be able to win because we were demanding something that was not achievable." In the Senate plan currently under negotiation, Republicans may only emerge with a sop in the form of language tightening income verification for people seeking subsidies for medical coverage.
Republicans have taken a hammering in opinion polls amid the fiscal standoff, and some in the party are concerned it could damage their prospects in next year's midterm elections. Although both parties have fared badly in opinion polls during the fiscal standoff, Republicans have taken the brunt of the blame from voters.
'That's it?'
And with fears that any fallout could damage the party's prospects in next year's midterm elections, the political recriminations have already begun.
Moderate Republican congressman Peter King told the Huffington Post: "After shutting down the government for two and a half weeks, laying off 800,000 people, all the damage we caused, all we would end up doing was taking away health insurance from congressional employees. That's it? That's what you go to war for?"
Senator John McCain, who was the Republican 2008 presidential nominee, was quoted by the New York Times as saying: "Republicans have to understand we have lost this battle, as I predicted weeks ago, that we would not be able to win because we were demanding something that was not achievable."
The White House has refused to negotiate over its healthcare law, pointing out that it passed in 2010, was subsequently validated by the Supreme Court, and was a central issue in the 2012 presidential election, which Mr Obama won handily.