The US recovery is hurtling off a fiscal cliff

Markets are being held hostage to the wrangling in America over raising the limit the government can borrow.

Markets had a shaky week due to the impending stand off in Congress over the annual budget and the debt ceiling. Republicans and Democrats are negotiating to extend the federal government's spending authority, which expires when the fiscal year ends on 1 October. If there is no deal by then, the government would have to stop all non-essential spending and many public-sector workers would not be paid.

Congress also needs to raise the debt ceiling the legal limit on how much America can borrow by mid-October if the Treasury is not to run out of money. The worry is that America's failure to honour its debts could trigger a financial crisis, given how much debt is priced off American borrowing. Negotiations are especially fraught this time because Republicans in the House of Representatives are insisting that funding for President Obama's new health care programme, which became law in 2010, be eliminated.

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