US debt ceiling: world's top bankers say default would be 'catastrophic'

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US debt ceiling: world's top bankers say default would be 'catastrophic'

Three of the world's most powerful bankers have warned of terrible consequences if the United States defaults on its debt, with Deutsche Bank chief executive Anshu Jain claiming default would be "utterly catastrophic".

"This would be a very rapidly spreading, fatal disease," Jain said on Saturday at a conference hosted by the Institute of International Finance in Washington.

"I have no recommendations for this audience ... about putting band aids on a gaping wound," he said.

Jain, JPMorgan Chase chief executive Jamie Dimon and Baudouin Prot, chairman of BNP Paribas, said a default would have dramatic consequences on the value of US debt and the dollar, and likely would plunge the world into another recession.

President Barack Obama: pushing for a long-term deal.

President Barack Obama: pushing for a long-term deal.Credit: Reuters

The warnings came as the US Senate scrambled to piece together a bipartisan exit strategy as House Republicans blamed President Barack Obama for the collapse of talks on extending US borrowing authority

The eyes of the world were on Washington as politicians grappled with how to reopen the shuttered government and avoid a potentially calamitous failure to pay the country's obligations for the first time ever, which experts warn would send shockwaves through international markets.

The US Treasury Department has said it expects to max out its borrowing authority next week and won't be able to prioritise payments on US debt over obligations like Social Security.

Lawmakers have seemed at an impasse over raising the debt limit. Democrats want to re-open federal agencies, which have been partially closed since funding ran out on October 1, and Republicans insist any debt ceiling deal includes plans to cut government spending.

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Dimon and other top executives from major US financial firms met with President Barack Obama and with lawmakers last week to urge them to deal with both issues.

On Saturday, Dimon said banks are already spending "huge amounts" of money preparing for the possibility of a default, which he said would threaten the global recovery after the 2007-2009 financial crisis.

"We need global growth," he said. "We are on the verge of getting it. Please let's not shoot ourselves in the foot."

World Bank chief Jim Yong Kim urged policymakers to avert the crisis, warning that "we are now five days away from a very dangerous moment."

Please let's not shoot ourselves in the foot

JPMorgan Chase chief executive Jamie Dimon

"If this comes to pass, it could be a disastrous event for the developing world, and that in turn will greatly hurt the developed economies as well," Kim said at the close of World Bank-International Monetary Fund meetings in Washington.

Three working days before debt ceiling deadline

With just three working days before the US Treasury's October 17 deadline for raising the debt ceiling, the Senate's Republican and Democratic leaders showed an intensifying desire to end the two-week government shutdown and ease the threat of default.

Democratic Senate Majority Leader Harry Reid said he held "extremely cordial but very preliminary" talks with top Republican Senator Mitch McConnell.

"Nothing conclusive" emerged from the pair's first face-to-face discussion about the twin crises, Reid told reporters.

He downplayed hopes of a quick fix, as the prospects of a weekend deal appeared to slip away.

McConnell suggested a bipartisan offer spearheaded by moderate Republican Senator Susan Collins as a workable template for a possible deal, but Reid rejected it.

The measure would extend borrowing authority into 2014 and fund the government for six months, but it would also repeal a medical device tax introduced under Obama's health care law, as an incentive to get conservatives on board.

Democratic leaders were most concerned, however, with the proposal to keep the existing automatic spending cuts, a move that would put agency spending at $US70 billion ($A74.24 billion) below what Democrats have proposed for fiscal 2014.

The Senate will hold a rare Sunday session, but the House of Representatives is off until Monday, when markets around the world might start seriously digesting Washington's impasse.

With the House negotiations in tatters, Obama called a snap meeting at the White House with the Senate's Democratic leadership to regroup.

"Their conclusion was that while Democrats remain united, Republicans have yet to coalesce behind a clear negotiating position," a Senate Democratic leadership aide said after the talks.

"Democrats are willing to negotiate on anything Republicans want to discuss as soon as we reopen the government and pay our bills."

Earlier this week, House Speaker John Boehner and his team met with Obama and suggested a six-week extension to US borrowing authority.

Despite previous comments that the White House would be open to such a plan, Obama said he wanted a long-term deal.

"It wouldn't be wise, as some suggest, to just kick the debt ceiling can down the road for a couple of months, and flirt with a first-ever intentional default right in the middle of the holiday shopping season," Obama said in his weekly address.

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The remarks prompted frustration from House Republicans.

Reuters, AFP

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