Senate leaders spearhead bid to avoid default

Senate Majority Leader Harry Reid met with Minority Leader Mitch McConnell. Mr Reid told reporters that while there was still a long way to go, the mere fact that they are negotiating is a good sign.

Yesterday marked the 13th day of a federal shutdown that continues to leave 350,000 government workers idle and curtails a wide range of government services.

More ominously, Thursday is when the Obama administration warns that the US will deplete its borrowing authority and risk an unprecedented federal default.

Economists say a default could send shockwaves throughout the US and global economies.

Politicians in both parties said they were watching for the reaction to the political uncertainty by the financial markets when they reopen today.

There are two issues at play: the US government has been partially shut since October 1 because of Congress’s failure to pass a normally routine temporary spending bill. Separately, Barack Obama wants Congress to extend the government’s borrowing authority – another matter that usually had been routine.

The focus of efforts to end the government shutdown and prevent a US default shifted to the Senate on Saturday, where Senate leaders were in bipartisan talks aimed at resolving the stalemates.

“We haven’t done anything yet” by way of compromise, Mr Reid said, although he and other Democrats said repeatedly there was reason for optimism.

Republican John Fleming said there was “definitely a chance that we’re going to go past the deadline” of Thursday that Treasury Secretary Jacob Lew has set for Congress to raise the $16.7 trillion debt limit.

Amid meetings in Washington of world finance officials, the International Monetary Fund’s policy committee said the US needs to take “urgent action” to address the impasse.

World Bank President Jim Yong Kim stressed the urgency for Washington policymakers to reach agreement on raising the debt ceiling before the Thursday deadline set by Mr Lew, saying the economic fallout of failing to act could include increased interest rates, slower global economic growth and falling business confidence. Such an outcome, he said, would have a “disastrous impact” on poor nations.

President Obama met Senate Democratic leaders at the White House after accusing Republicans of practising the politics of extortion. “Manufacturing crises to extract massive concessions isn’t how our democracy works, and we have to stop it,” Mr Obama said in his weekly radio and internet address.

After the Senate meeting of Mr Reid, Mr McConnell and two other lawmakers, Mr Reid and his top lieutenants spent more than an hour at the White House with Mr Obama and senior White House aides, including Mr Obama’s chief of staff, Denis McDonough. The leaders left without speaking and the White House offered no summary of the meeting.

Senate Democrats rejected a stab at compromise led by moderate Republican Senator Susan Collins, while Republicans blocked the advance of a no-strings attached measure the Democrats drafted to let the Treasury resume normal borrowing. The party line vote was 53-45, seven short of the 60 required under Senate procedural rules.

Mr Lew has said that without legislation to raise the debt limit, the government will deplete its ability to borrow money, risking a first-time federal default that could jolt the world economy.

A separate measure was needed to reopen the government fully af a partial shutdown that has resulted in unpaid leave for 350,000 federal workers.