US on brink of government shutdown


The United States is within hours of a government shutdown, as a budget duel between President Barack Obama and Republicans threatened America with a self-inflicted economic wound.

As a mood of crisis settled on Washington, five hours before a midnight deadline (1400 AEST), there were no signs of compromise to head off the first such disaster in 17 years.

Obama accused Republicans of holding America to ransom with their "extreme" political demands, while his opponents struck back at his party's supposed arrogance.

Around 800,000 government workers faced being sent home, government services were to be slashed and monuments such as the Statue of Liberty and national parks were to be closed.

Even if the government is shutdown for hours rather than days, the economic damage will take weeks to recover, and consumer confidence will take a dive.

The crisis is rooted in an attempt by "Tea Party" Republicans in the House of Representative to make passage of a new government budget conditional on thwarting Obama's signature health reform law.

The Democratic-led Senate and the president have repeatedly rejected this and are urging Republicans to pass an extension to government funding to temporarily stave off the shutdown.

"One faction of one party in one house of Congress in one branch of government doesn't get to shut down the entire government just to re-fight the results of an election," Obama said, referring to his own re-election.

"Time is running out. My hope and expectation is that in the eleventh hour once again, that Congress will choose to do the right thing and that the House of Representatives in particular will choose the right thing."

"You don't get to extract a ransom for doing your job, for doing what you're supposed to be doing anyway," he said, in a stern televised statement at the White House.

House lawmakers were expected to vote on a bill within hours that would delay the individual mandate, which forces all Americans to buy health insurance under the new law, for a year.

"It's a matter of fairness for all Americans," said Republican House speaker John Boehner, who has struggled to control the riotous anti-government Tea Party faction of his caucus.

The House has passed several efforts to delay the entire law by a year or defund it altogether.

But the Senate, which must also sign off on budget measures, knocked them back. Democratic leaders are demanding a "clean" budget resolution stripped of all political riders.

Senate Majority Leader Harry Reid warned the Senate would "get rid of" the new bill within minutes -- making a shutdown almost inevitable.

Obama warned that a government shutdown could badly damage an economy which has endured a sluggish recovery from the worst recession in decades.

"A shutdown will have a very real economic impact on real people, right away. Past shutdowns have disrupted the economy significantly," Obama said.

Stocks on Monday retreated as traders braced for the shutdown. The Dow Jones Industrial Average was down 128.57 points (0.84 percent) to 15,129.67.

Markets are likely to be even more traumatized if there is no quick solution to the next fast approaching crisis.

Republicans are also demanding Obama make concessions in the health care law to secure a lifting of the current $16.7 trillion debt ceiling, without which the United States would begin to default on its debts for the first time in history by the middle of October.

"Congress needs to keep our government open, needs to pay our bills on time, and never, ever threaten the full faith and credit of the United States of America," Obama said.

OM Financial senior client adviser Stuart Ive said the US dollar fell against most of the major currencies in overnight trade because of the impasse in Washington.

"The Aussie dollar managed to stay pretty strong against the US dollar," he said from Wellington.


We're going to be very sensitive to any news about a partial closure of the government or if some emergency legislation gets passed."

Mr Ive said a partial shutdown of the US government could detract as much as 0.1 percentage points from December quarter economic growth.

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