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In the U.S., a long, stressful game of fiscal Russian roulette draws to a close

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WASHINGTON - A high-stakes, multi-year battle over the U.S. debt ceiling drew to a close Tuesday with Republicans throwing in the towel.

President Barack Obama's congressional opponents ended the brinkmanship that has repeatedly pushed the U.S. to the edge of an unprecedented financial default, with the global economy hanging in the balance.

At the risk of infuriating the party rank-and-file, the leadership of the Republican-controlled House of Representatives got a few members Tuesday to side with a block of Democrats and vote to send a one-year debt extension to the Senate for its approval.

The move appeared to vindicate the hard line taken by the president, who has simply stopped negotiating with Republicans on an issue he likens to perpetual economic blackmail.

The U.S. is one of only two major democracies where lawmakers have the power to cut off the government's credit limit but unlike the other one, Denmark, the battles here have been frequent and highly politicized.

The prospect of an American government default holds chilling consequences for world markets, given that the U.S. represents about one-fifth of the global economy — or, put in other terms, has a GDP more than four times Greece, Spain, Italy and Portugal combined.

With all that on the line, Republicans had managed to extract spending cuts in recent debt-ceiling standoffs. The latest skirmish, last fall, saw a U.S. government shutdown and an 11th-hour deal to delay the debt issue.

Now with the clock ticking down again, and Republicans hoping to make gains in the 2014 congressional elections, the party has become less aggressive. It has also been at loggerheads with itself and incapable of uniting around a strategy.

Just a few days ago, Republicans considered demanding approval of the Keystone XL pipeline or changes to Obama's health law. But they couldn't agree to either of those, so they scaled down their ambitions and considered a more modest option: improved military pensions.

Still, the divided party's hawks and doves couldn't settle on a strategy.

Finally, Republican brass announced their bottom line: nothing. Republicans did not request anything Tuesday as 28 of them voted with 193 Democrats to get a no-strings-attached debt bill through the 435-member House.

The top Republican in Congress conceded the lack of unity in the ranks. He said Republicans had no choice but to work with their opponents.

"We don't have 218 votes. And when you don't have 218 votes, you have nothing," House Speaker John Boehner said.

"We've seen that before, and we'll see it again."

According to one report, Boehner joked in a closed-door meeting that he deserved an ovation from his caucus for taking a political "monkey" off their back in an election year, allowing them to move on to other issues. Instead, according that that report in the Washington Post, his troops greeted the news coldly and offered the most tepid applause.

Boehner later conceded at a news conference that his members were frustrated over the US$17 trillion national debt, angry at Obama for refusing to negotiate, and convinced that they might as well just "put a minimum number of votes up" to move on since the president won't offer anything.

It's a far cry from 2011.

Obama's White House has vowed never again to get sucked into the kind of marathon negotiations that shook markets and damaged the U.S. credit rating that year. Back then, the sides only managed to avert disaster by agreeing to the so-called "fiscal cliff" — a series of budget cuts that were to kick in automatically after the 2012 election, in the absence of a deal.

Anecdotes in a book reveal just how tense those negotiations became.

Then-treasury secretary Tim Geithner reportedly warned Obama that a U.S. default could be worse than the Great Depression of the 1930s.

The problem, Geithner said, was that U.S. Treasury bills were the backbone of the global financial system. An American debt default would trigger a cascading effect unlike anything seen in recent history — including the recent financial crisis.

"The 2008 financial crisis will be seen as a minor blip if we default," Geithner is quoted saying in Bob Woodward's book, "The Price of Politics." He said it was one thing for Greece to default, and request bailouts.

"It's a different thing for us to be Greece. No one would be able to save us."

The president has since expressed disdain for the idea that Congress should be allowed to spend money, rack up debts, and then when it's time to pay the bills hold the U.S. economy hostage.

That book describes how Boehner, for his part, found himself stuck between his own desire to get a deal and his militant grassroots — which either wanted conditions Democrats would never accept, or was dead-set against a debt extension at all.

It quotes him saying he'd be willing to risk his speakership if it meant a major deal with Obama.

That may now be happening — minus the major deal.

The hostility between Boehner and his own grassroots has grown, and tea party-affiliated groups have become increasingly vocal in demanding his resignation.

The White House, however, applauded Tuesday's move.

Gene Sperling, director of the White House's National Economic Council, said the administration hopes the development means "that the tactic of threatening default or threatening the full faith and credit of the United States for budget debates is over, off the table and never is going to happen again. And if so that would, I think, be a boost for confidence and investment in the U.S."

As for the broader budget picture, the U.S.'s annual deficit has been trimmed by more than half on the wave of a stronger economy and spending cuts. It's now at its lowest level since 2008.

But the U.S. debt is still going up, and now stands at $17 trillion.

According to the Congressional Budget Office, it's at 73 per cent of the national GDP for the highest level since the Second World War.

And because the U.S. is still in red territory, the government will need congressional authority to extend the debt level. Under the U.S. Constitution, it's Congress' responsibility to borrow money on credit, not the administration's.

In fact, the initial idea behind a debt ceiling was to make it easier for the White House to spend cash. It was introduced in 1917 to help fight the First World War, and spare the government the need to go to Congress every time it wanted more cash.

The IMF puts Canada's net debt-to-GDP level at less than half the U.S. rate — but that compares only federal governments, and excludes provincial and state debt.

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