Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news Republican and Democratic leaders are in crisis talks this morning (our time) to avert a catastrophe on global financial markets.
See more here from Reuters on the last minute discussions.
America needs to raise its US$14.3 trillion debt ceiling before August 2 or it will default on its debt. America's AAA rated sovereign debt has been seen as the safest in the world and is the basis for much of the trade in global credit markets.
A default is seen as an armageddon scenario that would unleash chaos on global financial markets and eventually trigger a new global rececession.
Talks between US President Barack Obama and Republican leader John Boehner broke down acrimoniously on Saturday with many experts saying there seemed little prospect of an imminent deal. However, US Treasury Secretary Timothy Geithner has warned Congress it must agree a deal over the next 48 hours to give it time to pass any legislation before the August 2 default.
Markets are nervously awaiting the opening of Asian time zone markets, which include our own, for signs of how markets might react. See more here at Reuters on the possible market fallout from a debt default.
If America were to default on its debt, its credit rating would immediately be downgraded. Many see a collapse on global stock markets and a Lehman-style freeze on credit markets.
Obama had been pushing for a plan to reduce America's budget deficit by over US$4 trillion, including a mix of spending cuts and tax increases. But Republicans, many of whom are 'Tea Party' Republicans dedicated to the reduction in the size of government, are vehemently opposed to any tax increases.
They would prefer Obama agree a short term deal that only involved spending cuts that would require Obama to come back again to Congress in 2012 before the next presidential election to ask for yet another debt ceiling increase, which would make it more difficult for Obama to get re-elected.
Any US debt default would make it more difficult and expensive for New Zealand to roll over its foreign debts. It would likely trigger a slump in the New Zealand dollar, but it would also increase the risks of a new collapse in global trade and a slide back into recession for the global economy.
We will update this article with developments from Washington and on global markets through the morning.
(Updated with more links and background)
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