Lawmakers in the United States have failed to come up with a deal to extend the country’s budget ceiling, raising the possibility of the first default in the nation’s history.
While both Republicans and Democrats had been working on a new deal, reports indicate that those have ceased and now both parties are creating plans of their own.
However, financial experts warn that a default could result in the downgrade of the United States’ Triple-A rating.
According to Reuters, president Barack Obama has now been discussing details of a Democrat plan that wouldn’t include revenue increases, going against a former demand of his.
Both parties are battling over whether spending cuts will limit social programs, or whether tax increases will be necessary.
The uncertainty over the debt situation has led experts to forecast a volatile week on American stock markets.
CommSec economist Craig James said in a statement this morning that “we simply don’t know” how markets will respond.
“Share markets would likely slump with the US dollar falling against the Euro and safe-haven currencies like the Japanese yen and Swiss franc. But the magnitude of the moves is uncertain.”
“The other uncertain is how markets would respond if rating agencies decide to reduce the AAA credit rating of the US even if a budget deal/debt ceiling lift is agreed. Simply, the result would put further downward pressure of the US dollar and push up US borrowing costs.”
The Australian sharemarket has opened weaker this morning as a result of the American debt talks, along with negative announcements this morning including the closure of several retail stores in the Just Group.
The benchmark S&P/ASX200 index was down 42 points or 0.93% to 4559.3 at 12.10 AEST, while the Australian dollar was at $US1.08c.
Commonwealth Bank shares lost 1.48% to $49.77, while AMP lost 1.88% to $4.71. Westpac lost 1.06% to $21.37 as ANZ fell 1.15% to $21.48.
Opposition leader Tony Abbott has attacked Prime Minister Julia Gillard over new reports that she wrote a paper urging colleagues to avoid battles with him over the carbon tax.
“What that shows is that the Prime Minister’s attacks on our policy aren’t genuine,” Abbott told ABC Radio. “When the Prime Minister says this is what she believes in, no one can take her seriously.”
“But she always knew what our policies were because our policies were out there and on the record.”
A new poll from Newspoll shows public support for the carbon tax has increased after initial negative responses.
Producer prices have increased due to hikes in the construction, petroleum and agriculture industries, according to the latest data from the Australian Bureau of Statistics.
The figures show that producer prices was by 0.8% in the June quarter, and by 3.4% in the year to June.
Building construction prices rose by 1.2%, with petroleum refining prices up by 10.3%.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
