US shutdown: Markets rally as deal edges closer

US shutdown: Markets rally as deal edges closer

“What we want to do is to offer the President today the ability to move a temporary increase in the debt ceiling,” Republican House leader John Boehner said on Thursday. The deal would involve a temporary extension of the debt limit to November 22 but no backdown on unlocking the budget standoff that has closed large parts of the government.

Breaching its borrowing limit would put the US at serious risk of defaulting and likely plunge the world back into recession.

The Republicans have said the White House must delay President Barack Obama’s flagship healthcare scheme by a year before they will agree to permanently raise the debt ceiling, or a new stop-gap budget.

London’s benchmark index, the FTSE 100, closed up 92.6 points, or 1.5pc, to 6,430, while in America, the Dow Jones Industrial Average had climbed 277 points, or 1.5pc, to 15030 by lunchtime in New York. The S&P 500 rose 23.50 points, or 1.4pc.

Some Republicans claim that the US can play for extra time regardless of the proposals, by using its tax receipts to keep up with repayments and by “prioritising” certain outgoings. Mr Obama has warned that there are no “silver bullets” to stop America defaulting – an event he described as “catastrophic”.

The offer of a solution to the looming debt ceiling crisis came as US Treasury Secretary Jack Lew warned that the US could exceed its borrowing limt before the October deadline because of the government shutdown.

Mr Lew said that the government is already relying on extraordinary measures to keep up with its debt repayments. He added that there is a “real risk of miscalculation” about the amount of cash the government will have on hand, which could lead to “unintended and serious consequences” for America’s economy. Estimates about the amount of money the US government will have available to pay its bills vary by as much as $ 20bn, he said.

The stand-off is already weighing on America’s global reputation with China criticising the impasse.

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