Washington (AFP) – With a potential debt default looming, Senate leaders appear close to a deal to avoid a self-inflicted political calamity that would shred U.S. credibility and rock the global economy.
Senate Republicans are scheduled to convene Tuesday at noon to review a plan being hammered out between Senate Majority Leader Harry Reid and Republican Minority Leader Mitch McConnell that would raise the U.S. government’s borrowing limit and end a partial federal government shutdown.
“I’m very optimistic we will reach an agreement that’s reasonable in nature this week to reopen the government, pay the nation’s bills and begin long-term negotiations to put our country on sound fiscal footing,” Reid said at the conclusion of Monday’s Senate session.
“We are not there yet, but tremendous progress” has been made, he said.
If Congress does not raise the $16.7 trillion debt ceiling by Thursday, the U.S. government will begin to run out of money and could start defaulting on its obligations for the first time in history.
Reid’s statement eased tension on the markets.
The Dow Jones Industrial Average closed Monday 0.42 percent higher at 15,301.26 while the broader S&P 500 rose 0.41 percent to 1,710.14.
Asian markets broadly rose Tuesday, with Tokyo, Sydney, Hong Kong and Seoul all closing up. Jakarta, Kuala Lumpur, Manila and Singapore were closed for public holidays.
“It’s not like the U.S. can’t afford to pay its bills; it’s more like its wife has just hidden its checkbook,” said CLSA Asia-Pacific Markets equity strategist Nicholas Smith.
“Most fund managers appear to be more frightened of being left behind if the market rips than of the apocalyptic scenario of failing to fix the debt ceiling on time,” he told Dow Jones Newswires.
But the dollar slipped against the yen: the greenback bought 98.40 yen in Tokyo trade against 98.67 yen in New York on Monday.
China and Japan — which between them hold more than $2.4 trillion of U.S. debt — have urged Washington to get its house in order.
Japan’s Finance Minister Taro Aso on Tuesday called on U.S. politicians to wake up.
“Many of them don’t seem to understand well the magnitude of the international impact this problem could have,” he told reporters.
“In the worst scenario, there will be a default, which is serious” for Japan, Aso was quoted as saying by the Nikkei daily.
But Aso also sounded optimistic. “I guess there will be some compromise in time,” he told reporters.
Oil prices also slipped in Asia trading, with West Texas Intermediate (WTI) for delivery in November down 27 cents to $102.14 a barrel, and Brent North Sea crude for November down 27 cents to $110.77 a barrel.
Ken Hasegawa,energy desk manager at Newedge Brokerage in Japan, said that traders have concerns about the U,S. economy even if a deal is struck.