Pain from US debt stand-off far from over

Pain from US debt stand-off far from over

Bickering US lawmakers may have approved a measure to reopen the government and pull it back from the brink of a catastrophic debt default, but substantial damage has already been done.

The bitter stand-off hurt everything it came into contact with: the ratings of US politicians from both parties, the US economy and local businesses, the country's international standing and cross-border engagement plans, all its citizens and residents, and even the White House vegetable garden.

Economists estimate the US government's shutdown since Oct 1 has cost billions of dollars, shaving off anywhere between 0.3 and 0.6 percentage point from fourth-quarter growth.

And it wasn't just Americans who suffered. Foreign students and workers applying for US visas, tourists in the United States and anyone dealing directly or indirectly with US federal processes reeled from the government shutdown.

But more long- lasting could be the consequences of the near-US default.

Global investors dumped short-term US bonds and questioned anew the greenback's status as a reserve currency, while world leaders from Singapore to Saudi Arabia came out to chide the US' top politicians as though they were recalcitrant teenagers.

Fitch Ratings put the US' credit rating on negative watch and could still become the second agency to strip US debt of its top rating, after Standard & Poor's did so in August 2011 following a similar debt debacle. This would likely lead to turmoil in credit markets as traders reprice the ubiquitous US bonds used as collateral.

And the pain is far from over. Even as world leaders and global markets on Thursday cheered the news of the US deal, analysts are eyeing the next likely stand-off - early next year.

Thursday's deal only funds US government spending until Jan 15 next year, and extends its borrowing authority until Feb 7. Without a more permanent solution, the squabbling is expected to start again in a few months.

"The deal merely kicks the can further down the road, and the next fiscal battle already looms on the horizon," said ABN Amro economist Georgette de Boele.

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