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Summary IMF chief warns of serious consequences for world economy as Obama and Republicans talks failed.
President Barack Obamas Democrats and their Republican rivals were further apart than ever in an impasse over Americas debt limit as Wall Street braced for a looming US default and credit downgrade.One week before a deadline to act, the two sides pursued competing budget plans that appeared to have little chance of winning broad congressional approval. There was no compromise in sight to raise the nations $14.3 trillion debt ceiling by August 2 to avert a default that could trigger global financial chaos.With politicians in Washington starkly at odds, corporate America was growing increasingly nervous. Credit rating agencies have threatened to cut Americas top-notch AAA bond rating if an increase in the debt limit is not accompanied by a plan for controlling long-term deficits. Such a deal seemed increasingly unlikely to emerge from political brinkmanship in Washington that has bordered on dysfunction.A default and downgrade could push the United States back into recession and send shock waves through global markets.Wall Street banks are preparing for the real possibility that the United States will lose its top credit rating, which theysay will cost the country $100 billion in additional interest payments and hurt both consumers and the economy.White House Press Secretary Jay Carney told reporters on Tuesday, This is the problem we have, we need congress to produce something that is a compromise and that therefore can get support from Democrats and Republicans in both houses and reach the Presidents desk and meet the Presidents approval.The stalemate in Washington is already having an effect, with investors starting to take cash out of the market and shifting away from some long-term investments.The continuing gridlock unnerved investors worldwide. US stocks and the dollar fell while gold hovered near record highs. There was no hint of panic, however, as markets held out hope the stalemate could still be broken.The tone in Washington was sour after Obama and House of Representatives Speaker John Boehner, the top Republican in Congress, delivered dueling televised addresses late on Monday and gave no ground in the bitter debate over how to raise the limit on Americas borrowing before the worlds biggest economy runs out of money to pay its bills.Republicans control the House and Obamas Democrats control the Senate.
