US shutdown deepens fears of looming debt crisis


by Associated Press

Posted on October 3, 2013 at 12:26 PM

Updated Thursday, Oct 3 at 1:18 PM

WASHINGTON (AP) -- The U.S. shutdown confrontation was leading headlong into a potentially more damaging clash over the nation's borrowing authority, with Democrats and Republicans hardening their stances Thursday and offering little hope of a breakthrough.
   The partial government shutdown limped into its third day as the bigger problem of the debt limit rumbled ever closer, raising fears of a worst-possible outcome: A disastrous U.S. default on its obligations that could send shockwaves across the world.
   Funding for much of the government has been cut off since Tuesday, when a Republican effort to thwart President Barack Obama's new health care law stalled a normally routine spending bill. Now, the dispute over the health law could grow to encompass legislation needed by mid-October to raise the debt limit.
   The U.S. Treasury warned on Thursday that failure to raise that debt ceiling could spark a new recession even worse than the one Americans are still recovering from.
   International Monetary Fund Chief Christine Lagarde said it was imperative for the whole world that that the U.S. not allow a default.
   "The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the U.S. economy, but the entire global economy," Lagarde said in a speech.
   "So it is "mission-critical" that this be resolved as soon as possible," she said.
   Obama laid the blame Thursday at the feet of the Republican leader of the House. He cast Boehner as a captive of a small band of conservative activists who want to extract concessions in exchange for passing the short term spending bill that would restart the government.
   "The only thing preventing people from going back to work and basic research starting back up and farmers and small business owners getting their loans, the only thing that is preventing all that from happening right now, today, in the next five minutes is that Speaker John Boehner won't even let the bill get a yes or no vote because he doesn't want to anger the extremists in his party," Obama said.
   His tough comments came a day after a White House meeting between Obama and congressional leaders yielded no progress.
   Boehner complained to reporters that Obama said anew that "he will not negotiate." Boehner made clear that curbing the health care overhaul that Obama pushed into law three years ago remains part of the price for returning federal workers to their jobs.
   The shutdown is keeping hundreds of thousands of federal workers home and affecting Americans in ways large and small. Scores of government programs, from feeding pregnant women to staffing call centers at the federal tax agency, were disrupted. Obama truncated a long-planned trip to Asia.
   The shutdown itself is estimated to trim only about 0.2 percent of the U.S. gross domestic product each week. But that could grow worse if the impasse begins to erode consumer and business confidence.
   The U.S. stock market sank to its lowest level in a month Thursday, while indexes in Germany and France also fell. 
   The shutdown closed national parks and forced 800,000 employees -- nearly a third of the federal workforce -- off the job, amid mounting anger from the public.
   For two dozen couples, the shutdown meant they may be forced to cancel their October weddings scheduled for closed off monuments in Washington. Prospective home owners applying for mortgages were facing delays because many need government confirmation of their financial data. For American Indian tribes, the effects were more immediate. Programs including health care for the elderly and disabled and bus service for rural areas were suspended indefinitely for Montana's 13,000-member Crow Tribe.
   "We're already taking calls from people saying, `Who's going to take care of my mom? Who's going to take care of my dad" said Shar Simpson, who leads the Crow's home health care program.
   People classified as essential employees -- such as air traffic controllers, Border Patrol agents and most food inspectors -- continued to work.
   On Thursday, Republicans planned to continue pursuing their latest strategy: muscling bills through the House that would restart some popular programs. 
   Democrats demanded that the entire government be reopened. They said the Republican strategy showed the party was buckling under public pressure.
   Associated press writers Alan Fram and Nancy Benac in Washington and Mathew Brown in Montana contributed to this story.