Republicans lose budget battle, but US fiscal war may continue

(By Deutsche Welle) In the last-minute deal that averted a default, Republicans won no substantive concessions from the White House. After taking a hit in the polls, the Grand Old Party is licking its wounds and contemplating what’s next.

For more than two weeks, Republicans went to the mat in Washington’s latest partisan fiscal battle in a push to defund President Barack Obama’s signature Affordable Care Act (ACA). But on Wednesday, the Tea Party caucus couldn’t hold the line any longer, with many moderate Republicans agreeing to cut their losses and support a bill to fund the government and raise the debt ceiling through the New Year.

“We fought the good fight, we just didn’t win,” Republican Speaker of the House John Boehner told conservative radio talk show host Bill Cunningham in Cincinnati, Ohio.

Under Wednesday’s agreement, the federal government will receive funding through January 15, while the debt ceiling has been raised until February 7. In exchange, Republicans secured only a token concession, which tightens income verification rules for Americans applying for health care subsidies under the ACA.

“Our drive to stop the train wreck that is the president’s health care law will continue,” Boehner said in a press release.

Although Boehner had encouraged his party to support the bill that the president would eventually sign, only 87 Republicans heeded the speaker’s call and voted for it. In the Senate, where the bill originated, 18 Republicans cast their ballots in favor of the legislation.

“The real question going forward is the same question as this time,” Theda Skocpol, author of “The Tea Party and the Remaking of Republican Conservatism,” told DW. “When will other Republicans, conservatives who want to operate within normal governing procedures, when are they going to stand up to these folks?”

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US dollar’s ‘exorbitant privilege’ at risk as Congress flirts with default

(By Deutsche Welle) The US has brought itself close to another self-inflicted fiscal crisis, with the government in shutdown and Congress flirting with default. The volatility could undermine confidence in the dollar as a safe haven.

Since the end of World War II, international investors have looked at the US dollar as a safe bet, reassured by the full faith and credit of Uncle Sam. In hard times, they parked their money in US Treasury bills to ride out the storm. But these days, Washington is not looking as reliable as it once did to some investors.

With Democrats and Republicans unable to compromise on a spending bill, the federal government shut down for the first time in 17 years. And Republicans have once again used the debt ceiling as leverage in budget negotiations with President Barack Obama, risking a default on US debt obligations, which could have a major impact on investor confidence.

Even a short-term compromise to raise the debt ceiling through the Thanksgiving holidays wouldn’t necessarily stave off the danger. In the summer of 2011, the threat of a default alone provoked ratings agencies to downgrade the US for the first time in history.

“Nobody knows where that can end,” Axel Merk, president of the investment advisory firm Merk Funds, told DW. “We took the risk with Lehman, and it was pretty bad, but I don’t think we’ve seen anything in comparison with what could happen if the US was truly to decide to not pay on time.”

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US government shutdown could rattle fragile economy

(By Deutsche Welle) If the US House of Representatives fails to reach a compromise over budget cuts, the federal government will go unfunded and partially shutdown. A shutdown could shake global confidence in the fragile American economy.

Republicans and Democrats in the House of Representatives continued to lock horns over America’s budget deficit on Friday with a shutdown of the US government looming should the two sides prove unable to reach a compromise by midnight.

Republicans, buoyed by the fiscally conservative Tea Party movement, have called for drastic budget cuts over the next decade in order to reign in Washington’s ballooning debt. For the current fiscal year, Republicans are seeking some $40 billion (27 billion euros) in budget cuts.

Meanwhile, Democrats countered the Republican demand with $33 billion in reductions, arguing that deeper cuts could send America’s fragile economy into a tailspin just as it begins to work its way out of the worst crisis since the Great Depression in the 1930s.

President Obama met with Republican leader John Boehner and Democratic leader Harry Reid for emergency negotiations earlier this week. Although both sides of the political aisle said progress had been made toward compromise, a solution is outstanding.

“The only question is whether politics or ideology is going to get in the way of preventing a government shutdown,” Obama said in an unscheduled appearance in the White House press briefing room.

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