The US debt crisis shows no signs of resolution as Tuesday's deadline to raise the debt ceiling draws closer.
Late last night, the Republican-controlled House of Representatives finally approved a bill to raise the debt ceiling in return for $22bn spending cuts. It was immediately rejected by the Democratic-controlled Senate.
The frenzied series of votes has highlighted not only the profound partisan division between Democrats and Republicans; it has also laid bare the deepening rift within the Republican party. On Thursday, the Republican leader in the House, John Boehner, was forced to abandon a vote on his bill to avoid a humiliating defeat by hardline Tea Party conservatives.
While this chaos in the Republican ranks temporarily looked like it could strengthen Barack Obama's position, as the Tuesday deadline looms, the situation does not look good for anyone. We can expect the fast-paced political manoeuvres to continue as each party tries to make their plan more acceptable to the other side, while also keeping their own hardliners on side.
Obama, who entered the debt ceiling debate calling for a "clean" increase with no spending cuts attached, has made significant concessions, accepting deep cuts to state-run health and pension schemes.
This is a crisis that threatens the entire global economy. The International Monetary Fund has already warned the US that a continued impasse risks reigniting Europe's debt crisis. Even if a bill is rushed through, it is possible that we have not seen the last of it.
It is also a crisis that threatens to derail Obama's presidency. The Democratic Senate leader, Harry Reid, has promised a vote on a new deficit-reduction proposal which will incorporate parts of a "back up plan" initially proposed by Mitch McConnell, a Republican Senator. "Unless there is a compromise or [Republicans] accept my bill we're headed for economic disaster," said Reid, who is seeking a vote on this proposal today. According to the Huffington Post, some centrist Republicans may be willing to back the bill.
The two proposals have much in common, the crucial difference being that in the Democratic Senate version, Obama would be given the $2.5 trillion debt increase in one step, rather than the three steps suggested by the Republican bill. This would prevent a hugely damaging second debt crisis during an election year. Democrats are worried with good reason -- a recent Pew poll contains worrying results for Obama.
Disastrous growth figures -- the US grew at an annual rate of just 1.3 per cent in the three months to June -- will do nothing to help. Obama needs nothing short of a miracle on the economy, and this crisis has laid bare the extent to which he is held hostage by the Republican control of the House. If the GOP selects a plausible candidate for 2012, the president will have a very serious fight on his hands.