JPMorgan's Dimon on US default: 'You don't want to know'

Washington (AFP) - Top US banker Jamie Dimon of JPMorgan Chase warned Saturday that the United States needs to avoid defaulting on its debt, saying the possible repercussions are unfathomable.

"You don't want to know," Dimon said when asked what would happen if the US is forced into default because Congress did not raise the country's borrowing limit.

"It would ripple through the world economy in a way that you couldn't possibly understand," he said at a discussion held by the Institute of International Finance, a leading forum for the world's banks.

He said it would shock the money market, where trillions of dollars in cash are invested in ostensibly top-quality securities like US debt based on expectations that the borrowers will not default.

"You don't know the ripple effect of that through money-market funds," stressed Dimon, head of the largest US bank by assets.

"The money markets are the most fickle markets in the world, they're like a rabbit."

Dimon was speaking as the White House and congressional Republicans remained deeply at odds over passing a budget and raising the US debt ceiling, a move needed to ensure the government can continue to pay its bills.

The US Treasury has repeatedly warned that as soon as October 17 it will be short of cash and forced to default on its obligations, though not saying whether it would skip debt payments or others, like social security payments to retired Americans.

With no compromise apparent, and the government partially shut down now for 12 days due to lack of a budget, Dimon warned that the deadline was looming.

"As you get closer to it, the panic will set in," he said.

On the other hand, he emphasized: "The US cannot default. I think every responsible person knows that."

Congress lumbers while threatened default looms

Political maneuvering on Capitol Hill as threatened debt default creeps uncomfortably nearer

WASHINGTON (AP) -- Republicans and Democrats in Congress lumbered through a day of political maneuvering Saturday while a threatened default by the Treasury crept uncomfortably closer and a partial government shutdown neared the end of its second week.

"We haven't done anything yet" by way of compromise, Majority Leader Harry Reid, D-Nev., said after Senate leaders took control of efforts to end the impasse, although he and other Democrats said repeatedly there was reason for optimism.

Across the Capitol, tea party caucus Republican Rep. John Fleming of Louisiana said there was "definitely a chance that we're going to go past the deadline" on Thursday that Treasury Secretary Jack Lew has set for Congress to raise the $16.7 trillion debt limit.

Lawmakers in both parties said they were watching for the reaction to the political uncertainty by the financial markets when they reopen after the weekend.

President Barack Obama met with Senate Democratic leaders at the White House after accusing Republicans of practicing the politics of extortion. "Manufacturing crises to extract massive concessions isn't how our democracy works, and we have to stop it," Obama said in his weekly radio and Internet address.

Ironically, though, House Republicans who triggered the shutdown with tea party-driven demands to eradicate Obama's health law conceded that they had temporarily been reduced to virtual bystander status.

"The Senate needs to hold tough," Rep. Greg Walden, R-Ore., quoted Speaker John Boehner, R-Ohio, as telling the GOP rank and file in a private meeting. "The president now isn't negotiating with us."

The effects of the partial government shutdown varied widely, and in some cases, states and outsiders were stepping in.

Officials said the Statue of Liberty would reopen on Sunday after New York agreed to pick up the $61,600 daily tab for running the site. South Dakota and corporate donors did the same for Mount Rushmore, beginning on Monday at a cost of $15,200 a day.

The White House, drawing attention to the effects of the partial shutdown on government research, noted that four of five Nobel Prize-winning scientists working for the federal government had to be furloughed. It said two-thirds of the employees at the Centers for Disease Control have had to stay home.

Amid meetings in Washington of world finance officials, the International Monetary Fund's policy committee said the U.S. needs to take "urgent action" to address the impasse. World Bank President Jim Yong Kim stressed the urgency for Washington policymakers to reach agreement on raising the debt ceiling before the Thursday deadline set by Lew, saying the economic fallout of failing to act could include increased interest rates, slower global economic growth and falling business confidence.

One day after talks between the White House and House Republicans fizzled, the focus turned to the Senate.

There, a meeting of Reid, GOP leader Mitch McConnell of Kentucky and two other lawmakers produced no immediate sign of progress. Later, Reid and his top lieutenants — Sens. Chuck Schumer, Patty Murray and Dick Durbin — spent more than an hour at the White House with Obama and senior White House aides, including Obama's chief of staff, Denis McDonough. The leaders left without speaking and the White House offered no summary of the meeting.

The president's party rejected a stab at compromise led by GOP Maine Sen. Susan Collins, while Republicans blocked the advance of a no-strings attached measure the Democrats drafted to let the Treasury resume normal borrowing. The party line vote was 53-45, seven short of the 60 required.

In disagreement was a pair of issues, both important and also emblematic of a broader, unyielding dispute between the political parties over spending, taxes and deficits.

Lew has said that without legislation to raise the nation's $16.7 trillion debt limit, default was possible any day, and with it, a calamitous impact on the economy.

A separate measure was needed to reopen the government fully after 12 days of a partial shutdown that has resulted in furloughs for 350,000 federal workers and that administration officials warn could spread hardship if it remains in effect.

Politicians agreed passage of both was essential.

But Republicans demanded concessions that Democrats were unwilling to give — unless they could get something in return.

Officials in both parties said that Democrats had raised the possibility with Republicans of a long-term spending bill that included deficit savings that could replace some or all of the across-the-board spending cuts that began taking effect at the beginning of the year.

The political calculations were evident. Polls show all portions of the electorate except tea party supporters are increasingly displeased, and Republicans are bearing the brunt of their unhappiness.

"Perhaps he sees this as the best opportunity for him to win the House in 2014," Fleming said of the president. "It's very clear to us he does not now, and never had, any intentions of negotiating."

Reid was savage.

Republicans had begun seeking concessions on health care, he said, and now their No. 1 issue is "to divert attention from the fools they've made of themselves on Obamacare."

House Democrats lined up en masse to sign a legislative petition calling on Boehner to allow a vote on a bill to reopen the government, a step he has repeatedly refused to take.

In his Saturday address, Obama said, "Politics is a battle of ideas, but you advance those ideas through elections and legislation — not extortion."

Collins' suggested compromise had gained traction in recent days, before Reid told McConnell it was a nonstarter.

In a statement, the Maine Republican called the response unfortunate, and said talks on the plan involving senators of both parties "were constructive and give me hope that a bipartisan solution to reopen government and prevent default is within our reach."

It could have raised the debt limit through Jan. 31 and reopened the government for six months.

At the same time, it would have granted federal agencies flexibility in adjusting to the across the board cuts, and made two changes in the health care law.

One would have set new income verification conditions on individuals applying for federal subsidies for coverage; the other would have suspended a medical device tax for two years.

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Associated Press writer Jim Kuhnhenn contributed to this report.

Focus shifts to Senate in shutdown talks

Beijing (AFP) - While US politicians grapple with how to reopen their shuttered government and avoid a potentially disastrous default on their debt, the world should consider 'de-Americanising', a commentary on China's official news agency said Sunday.

"As US politicians of both political parties (fail to find a) viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanised world," the commentary on state news agency Xinhua said.

In a lengthy polemic against American hegemony since World War two, it added: "Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated.

"A new world order should be put in place, according to which all nations, big or small, poor or rich, can have their key interests respected and protected on an equal footing."

Negotiations over how to end the budgetary impasse have shifted to the US Senate after House Representatives failed to strike a deal with President Obama on extending borrowing authority ahead of an October 17 deadline.

Beijing has in recent days issued warnings as well as appeals for a deal, all the while emphasising the inseparable economic ties that bind the world's two biggest economies.

"The cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising debt ceiling has again left many nations' tremendous dollar assets in jeopardy and the international community highly agonised," said the commentary.

China is the biggest foreign holder of US Treasury bonds, worth a total of $1.28 trillion according to US government data.

"Instead of honouring its duties as a responsible leading power, a self-serving Washington has abused its superpower status and introduced even more chaos into the world by shifting financial risks overseas," but equally stoked "regional tensions amid territorial disputes, and fighting unwarranted wars under the cover of outright lies" the commentary said, referring to Iraq.

It added that emerging economies should have a greater say in major international financial institutions the World Bank and International Monetary Fund and proposed a "new international reserve currency that is to be created to replace the dominant US dollar".

China has only slightly more weight than Italy at the IMF, which has been headed by a European since its creation in 1944.

A governance reform has been in the works for three years but its implementation has been blocked by the effective veto of the United States.

In a commentary published by its official news agency, China issues a call to “de-Americanize” international finance.
Condemning D.C. stagnation

BAGHDAD (AP) — First came the fireball, then the screams of the victims. The suicide bombing just outside a Baghdad graveyard knocked Nasser Waleed Ali over and peppered his back with shrapnel.

Ali was one of the lucky ones. At least 51 died in the Oct. 5 attack, many of them Shiite pilgrims walking by on their way to a shrine. No one has claimed responsibility, but there is little doubt al-Qaida's local franchise is to blame. Suicide bombers and car bombs are its calling cards, Shiite civilians among its favorite targets.

Al-Qaida has come roaring back in Iraq since U.S. troops left in late 2011 and now looks stronger than it has in years. The terror group has shown it is capable of carrying out mass-casualty attacks several times a month, driving the death toll in Iraq to the highest level in half a decade. It sees each attack as a way to cultivate an atmosphere of chaos that weakens the Shiite-led government's authority.

Recent prison breaks have bolstered al-Qaida's ranks, while feelings of Sunni marginalization and the chaos caused by the civil war in neighboring Syria are fueling its comeback.

"Nobody is able to control this situation," said Ali, who watches over a Sunni graveyard that sprang up next to the hallowed Abu Hanifa mosque in 2006, when sectarian fighting threated to engulf Iraq in all-out civil war.

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In this Oct. 11, 2013 photo, Nasser Waleed Ali talks during an interview with the Associated Press i …

"We are not safe in the coffee shops or mosques, not even in soccer fields," he continued, rattling off some of the targets hit repeatedly in recent months.

The pace of the killing accelerated significantly following a deadly crackdown by security forces on a camp for Sunni protesters in the northern town of Hawija in April. United Nations figures show 712 people died violently in Iraq that month, at the time the most since 2008.

The monthly death toll hasn't been that low since. September saw 979 killed.

Al-Qaida does not have a monopoly on violence in Iraq, a country where most households have at least one assault rifle tucked away. Other Sunni militants, including the Army of the Men of the Naqshabandi Order, which has ties to members of Saddam Hussein's now-outlawed Baath party, also carry out attacks, as do Shiite militias that are remobilizing as the violence escalates.

But al-Qaida's indiscriminate waves of car bombs and suicide attacks, often in civilian areas, account for the bulk of the bloodshed.

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FILE - In this Friday, Oct. 11, 2013 file photo, the Tigris River snakes its way through Baghdad, Fr …

At least 42 people were killed in new wave of bombings in mostly Shiite-majority cities on Sunday.

The group earlier this year renamed itself the Islamic State of Iraq and the Levant, highlighting its cross-border ambitions. It is playing a more active military role alongside other predominantly Sunni rebels in the fight to topple Syrian President Bashar Assad, and its members have carried out attacks against Syrians near the porous border inside Iraq.

The United States believes the group's leader, Abu Bakr al-Baghdadi, is now operating from Syria.

"Given the security vacuum, it makes sense for him to do that," said Paul Floyd, a military analyst at global intelligence company Stratfor who served several U.S. Army tours in Iraq. He said the unrest in Syria could be making it even easier for al-Qaida to get its hands on explosives for use in Iraq.

"We know Syrian military stocks have fallen into the hands of rebels. There's nothing to preclude some of that stuff flowing across the border," he said.

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FILE - In this Tuesday, Sept. 24, 2013 file photo, Qasim Ahmed Tahan carries the dead body of his 5- …

Iraqi officials acknowledge the group is growing stronger.

Al-Qaida has begun actively recruiting more young Iraqi men to take part in suicide missions after years of relying primarily on foreign volunteers, according to two intelligence officials. They said al-Baghdadi has issued orders calling for 50 attacks per week, which if achieved would mark a significant escalation.

One of the officials estimated that al-Qaida now has at least 3,000 trained fighters in Iraq alone, including some 100 volunteers awaiting orders to carry out suicide missions. Both officials spoke on condition of anonymity because they are not authorized to disclose intelligence information.

A study released this month by the Washington-based Institute for the Study of War said al-Qaida in Iraq has emerged as "an extremely vigorous, resilient, and capable organization" that can operate as far south as Iraq's Persian Gulf port of Basra.

The group "has reconstituted as a professional military force capable of planning, training, resourcing and executing synchronized and complex attacks in Iraq," author Jessica Lewis added.

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FILE - In this Sunday, Sept. 22, 2013 file photo, people inspect the site of a double suicide bomb a …

The study found that al-Qaida was able to carry out 24 separate attacks involving waves of six or more car bombs on a single day during a one-year period that coincided with the terror group's "Breaking the Walls" campaign, which ended in July.

It carried out eight separate prison attacks over the same period, ending with the complex, military-style assaults on two Baghdad-area prisons on July 21 that freed more than 500 inmates, many of them al-Qaida members.

"It's safe to assume a good percentage of them ... would flow back into the ranks," boosting the group's manpower, said Floyd, the military analyst.

American troops and Iraqi forces, including Sunni militiamen opposed to the group's extremist ideology, beat back al-Qaida after the U.S. launched its surge strategy in 2007. That policy shift deployed additional American troops to Iraq and shifted the focus of the war effort toward enhancing security for Iraqis and winning their trust.

By 2009, al-Qaida and other Sunni extremist groups were "reduced to a few small cells struggling to survive and unable to mount more than token attacks," Kenneth Pollack, a Clinton administration official who is now a Middle East analyst at the Brookings Institution, noted in a report earlier this year.

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FILE - In this Sept. 30, 2013 file photo, a man inspects a copy of the Quran, Islam's holy book, ami …

Now there are fears that all the hard work is coming undone.

Iraqis, both Sunni and Shiite, say they are losing faith in the government's ability to keep the country safe.

"Al-Qaida can blow up whatever number of car bombs they want whenever they choose," said Ali Nasser, a Shiite government employee from Baghdad. "It seems like al-Qaida is running the country, not the government in Baghdad."

Many Sunnis, meanwhile, are unwilling to trust a government they feel has sidelined and neglected their sect.

Iraqi officials say that lack of trust has hampered intelligence-gathering efforts, with fewer Sunnis willing to pass along tips about suspected terrorist activities in their midst.

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FILE - In this Monday, Oct. 7, 2013 file photo, Mohammed Moses grieves by the grave of his father wh …

"During the surge, we helped build up the immune system of Iraq to deter these attacks. Now that immune system has been taken away," said Emma Sky, a key civilian policy adviser for U.S. Army Gen. Ray Odierno when he was the top American military commander in Iraq.

"Before you had the U.S. there to protect the political space and help move the country forward," she added. "How much longer can this go on before something breaks?"

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FILE - In this Thursday, Sept. 12, 2013 file photo, mourners grieve for a man killed Wednesday in a …

Associated Press writers Qassim Abdul-Zahra and Sameer N. Yacoub contributed to this report.

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Follow Adam Schreck on Twitter at www.twitter.com/adamschreck.

BEIRUT (AP) — Gunmen kidnapped a team of seven workers from the International Committee of the Red Cross after stopping their convoy early Sunday along a roadside in northern Syria, a spokesman said.

Simon Schorno, a spokesman for the ICRC in Damascus, said the abduction took place near the town of Saraqeb in Idlib province around 11:30 a.m. local time (0830 GMT) as they team was returning to Damascus. Six of the people kidnapped are ICRC staff workers and one is a volunteer from the Syrian Red Crescent, he said.

Schorno declined to provide the nationalities of the six ICRC employees.

Syria's state news agency, quoting an anonymous official, said the gunmen opened fire on the ICRC team's four vehicles before seizing the Red Cross workers. The news agency blamed "terrorists," a term the government uses to refer to those opposed to President Bashar Assad.

Schorno said the team of seven had been in the field since Oct. 10 to assess the medical situation in the area and to look at how to provide medical aid. He said the part of northern Syria where they were seized "by definition is a difficult area to go in."

Much of the countryside in Idlib province, as well as the rest of northern Syria, has fallen into the hands of rebels over the past year, and kidnappings have become rife, particularly of aid workers and foreign journalists.