US lawmakers stuck in deadlock as default looms

President Barack Obama, in a televised address aimed at rallying public support for a package proposed by Democrats, warned that failure to increase the U.S. borrowing limit would severely hurt the nation.

“For the first time in history, our country's triple-A credit rating would be downgraded, leaving investors around the world to wonder whether the United States is still a good bet,” he said in remarks in the East Room of the White House on Monday night.

Republican and Democratic lawmakers, despite weeks of intense talks, have been unable to agree on how to lift the US$14.3 trillion debt limit by an Aug. 2 deadline, when the country runs out of cash to pays its bills.

Markets have been rattled by the descent of negotiations into an acrimonious stalemate, with both sides offering competing plans that are unlikely to win bipartisan support.

Gold has been pushed to an all-time high and the dollar has softened as investors weigh the harm a default could do to U.S. and world growth if it pushed up borrowing costs as expected.

“Every day that goes by without a deal will see investors become a bit more defensive,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Obama warned a default would inflict a tax hike on all Americans by pushing up borrowing costs on things like credit card loans and mortgages, but sought to assure markets a deal could still be reached.

“I have told leaders of both parties that they must come up with a fair compromise in the next few days that can pass both houses of Congress — a compromise I can sign. And I am confident we can reach this compromise,” he said.

Rating agency S&P warns it could downgrade the United States unless lawmakers agree on steps to reduce the deficit by US$4 trillion over 10 years.

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