- America's shaky financial position got markedly worse
yesterday when the slide in the value of the dollar accelerated and a political
row left the government in danger of defaulting on its debt. Republicans
in the House of Representatives are refusing to back an increase in US
debt levels in the latest dispute with the White House over economic policy.
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- The government needs another $450 billion (£300
billion) to meet immediate bills but is facing opposition from politicians
alarmed at a predicted budget deficit of $150 billion this year.
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- US Treasury Secretary Paul O'Neill warned: "If they
don't act we are going to hit the wall, probably by next weekend because
on Sunday we've got to certify social security payments and other large
payments."
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- A $1.3 trillion tax cut, a declining economy and massive
costs from the war on terrorism have left the US short of cash. It will
dip into its social security surplus to balance the budget.
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- Another bad day on Wall Street was aggravated by further
falls for the dollar, as foreign investors grow increasingly pessimistic
about the prospects for the world's biggest economy.
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- The euro traded at more than 98 cents for the first time
since February 2000, up from 87 cents since April, while sterling rose
to a 22-month high of $1.5084. Analysts at Citibank now expect the euro
to reach $1.02 in the next three months.
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- An attempt by Japan to weaken the yen by buying dollars
had only limited success. It sold around $4 billion of yen, yet the Japanese
currency soon recovered to 121.21 per dollar.
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- The Dow Jones fell more than 100 points in morning trading
in New York and was down 56 points at 9197 by early afternoon. Nasdaq,
the technology market, briefly fell below its worst level since the September
11 attacks, down 8 points at 1422.
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- Bleak profits, corporate scandals and terrorism fears
have left investors reluctant to buy shares, causing the biggest half-year
losses since 1970. Minor rallies are repeatedly followed by an immediate
selling spree. A downgrade from UBS Warburg for technology giants Lucent
and Nortel also rocked sentiment. Goldman Sachs lowered earnings estimates
for IBM.
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- Analysts assume the Bush administration is involved in
a game of brinkmanship with political opponents, who are thought certain
to approve new borrowing later this week.
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- However, the government has already been forced into
cancelling its usual weekly sale of Treasury bills, the equivalent of gilts,
while it awaits permission to raise new money. The slightest government
default on debt would have a dramatic effect on the stability of stock
markets.
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- Mr O'Neill has faced fierce criticism for his handling
of the economy and for "loose cannon" comments when he seemed
to question whether a strong dollar was best for the US. His enemies could
use his urgent need for funds to inflict further damage on his reputation.
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- Figures this week on consumer confidence and factory
orders are eagerly awaited for signs of a recovery. Consumer spending,
two thirds of the economy, is likely to have faltered.
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- Alan Greenspan, chairman of the US Federal Reserve, will
make a decision on interest rates tomorrow. He is expected to leave them
unchanged.
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- http://www.telegraph.co.uk/money/main.jhtml;$sessi
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