US 'almost out of time' for debt deal: Obama (AFP)

WASHINGTON (AFP) – US President Barack Obama warned Friday that polarized lawmakers were "almost out of time" to forge a deal averting a disastrous debt default that could send shockwaves though the world economy.

Casting himself as above the angry fray in Congress, Obama urged a compromise blending rival approaches in the Democratic-held Senate and Republican-led House of Representatives for raising the $14.3 trillion debt ceiling.

"There are plenty of ways out of this mess. But we are almost out of time. We need to reach a compromise by Tuesday so that our country will have the ability to pay its bills on time, as we always have," he said.

With global markets rattled by the see-saw political battle in Washington, White House spokesman Jay Carney told reporters the fragile US economy "has suffered because of the uncertainty" and warned "some damage has been done."

Lawmakers still warred over how much to raise the limit, with Republican House Speaker John Boehner pushing for a short-term increase that would set the stage for another high-stakes showdown over spending in a few months.

"We just can't do that," said Democratic Senate Majority Leader Harry Reid, whose plan would spare Obama another politically fraught debt battle before the November 2012 elections. "We cannot be in this battle all the time."

After two embarrassing abortive efforts, Boehner was to bring his plan for a vote in the House, having again re-written his bill in a bid to satisfy the most conservative members in his restless majority in the face of lockstep opposition from House Democrats.

Senate Democrats warned the measure was dead on arrival in the upper chamber even as Reid took steps setting up procedural votes on his plan by 1:00 am (0500 GMT) Sunday and 7:30 am Monday with a final vote sometime on D-Day, Tuesday.

That would leave it up to the divided House to take the final step, a down-to-the-wire endgame with unprecedented financial stakes as the US economy still struggled to recover from the global meltdown of 2008.

Obama insisted both sides were "in rough agreement" on how much spending can be cut "responsibly," and on the steps to take in the coming months on tax reforms as well as some kind of enforcement mechanism.

But when a well-wisher at the White House told Obama that he owed him a poker game, the president responded: "I got some high stakes poker going on right now."

Chinese media attacked the United States over the debt wrangling, warning it could plunge the world into another recession.

China is the top foreign holder of US debt with holdings at $1.16 trillion in May, according to US data, and has raised concerns about its investments.

Raising the debt ceiling could hurt the US dollar and trigger a "torrential flood" of liquidity into the global economy, fueling inflation in emerging economies such as China, the Communist Party mouthpiece People's Daily said.

China's official Xinhua news agency also accused US lawmakers of being "dangerously irresponsible" and warned they risked "strangling the still fragile economic recovery."

But in more bad news for the US economy, struggling to recover from the 2008 financial crisis, government data released Friday showed economic growth had nearly stalled in the first half.

The US economy grew at a dead-pace 0.4 percent in the first quarter and only 1.3 percent in the second quarter of 2011, the Commerce Department said.

Markets around the world remained on edge as Asian stocks fell amid fears that US lawmakers will not break the deadlock.

The Dow Jones Industrial Average plunged 99.07 points (0.81 percent) to 12,141.04 in the first half-hour of trading.

European stocks markets also slid as the US debt crisis deepened, with London's FTSE 100 index of top shares dropping 0.59 percent to 5,838.65 points and Frankfurt's DAX 30 shedding 0.80 percent to 7,132.45 points.

The US economy hit its debt ceiling on May 16 but has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally.

View the original article here

Moody's warns Greek default almost certain (Reuters)

By Ingrid Melander and George Georgiopoulos Ingrid Melander And George Georgiopoulos – 2?hrs?22?mins?ago

ATHENS (Reuters) – Moody's cut Greece's credit rating further into junk territory on Monday and said it was almost certain to slap a default tag on its debt as a result of a new EU rescue package.

It was the second rating agency to warn of a default after euro zone leaders and banks agreed last week that the private sector would shoulder part of the burden of a rescue deal that offers Greece more cash and easier loan terms to keep it afloat and avoid further contagion.

"The announced EU program along with the Institute of International Finance's statement implies that the probability of a distressed exchange, and hence a default, on Greek government bonds is virtually 100 percent," Moody's said in a statement.

Bank lobby IIF, which led private sector negotiations, aims to attract 90 percent investor participation in the bond exchange plan which comes on top of the EU's new 109 billion euro bailout.

Moody's cut Greece's rating by three notches to Ca, just one notch above default, to reflect the expected loss implied by the proposed debt exchanges.

Greece now has the lowest rating of any country in the world covered by Moody's, which, like Fitch last week, said it would review Greece's rating after the debt swap is completed.

"Once the distressed exchange has been completed, Moody's will reassess Greece's rating to ensure that it reflects the risk associated with the country's new credit profile, including the potential for further debt restructurings," it said.

However, whereas Fitch pledged to quickly give Greece a higher, "low speculative grade" after its bonds had been exchanged, Moody's said it could not forecast when the rating would change or how.

"It all depends how quickly the debt exchange takes place," said Alastair Wilson, Moody's Managing Director for EMEA Credit Policy. "Once we have greater visibility over that, we will reassess the credit profile quite quickly. Whether the rating will change, that's a different question," he told Reuters.

A senior EU official said on Saturday that the aim was to start a voluntary swap of privately-held Greek bonds in late August and conclude it in early September.

Greek bank shares and the broader stock market were unfazed by Moody's action. Analysts said the downgrade and the default warning were priced in and less worrying following assurances provided by the EU deal.

"The EU Council last week effectively secured Greek banks' continued access to ECB liquidity, even in the case that PSI (private sector involvement) triggers a selective default," said Platon Monokroussos, an economist at EFG Eurobank.

The government has repeatedly criticized ratings firms for their downgrades and its spokesman threatened on Monday to end its subscriptions to these agencies as the new rescue package means Greece will not issue new bonds for years.

"All governments pay a subscription to these agencies. We, I think, do not need the reviews anymore. They have no practical value," Elias Mosialos told Radio 9. "Perhaps the finance ministry should end its subscription."

CONTAGION CONTAINED ... FOR NOW

Moody's said it would take into account the possibility of a second default while reassessing Greece's rating.

"Our experience is that relatively small restructurings have often been followed by deeper defaults," Wilson said, adding that he could not say if this would be the case for Greece.

The rescue package for Greece benefits other euro zone countries by containing near-term contagion risks but it was not necessarily positive in the longer run as it set a precedent for private sector involvement in rescue deals, Moody's said.

"The support package sets a precedent for future restructurings should the finances of another euro area sovereign become as problematic as those of Greece. The impact of Thursday's announcement for creditors of Ireland and Portugal is therefore likely to be credit-neutral," it said.

The cost of insuring most peripheral euro zone government debt against default rose on Monday on market doubts that the fresh aid package for Greece agreed last week will protect bigger economies from contagion.

Standard & Poor's and Fitch rate Greece CCC, broadly in line with Moody's rating. S&P has not yet said how the EU summit deal will affect Greece's rating.

(Additional reporting by Cecile Lefort in Sydney; Writing by Ingrid Melander, editing by Mike Peacock)

View the original article here