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Obama says US reputation damaged by debt defa -

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SCOTT BEVAN: While the prospect of a potentially catastrophic US debt default has been defused, there are already concerns that the debt time bomb could re-emerge early next year.

President Obama's failure to secure a long term deal with the US Congress means major holders of American debt, including China and Japan, remain worried about any more damage the creditworthiness of the world's biggest economy.

Here's our business editor Peter Ryan.

PETER RYAN: The US government is back up and running, and for now a relative peace appears to have broken out between Democrats and Republicans.

But president Obama says the damage - not just to the US economy, but to America's global reputation - runs deep.

BARACK OBAMA: These last few weeks have reflected completely unnecessary damage on our economy. We don't know yet the full scope of the damage, but every analyst out there believes it's slowed our growth.

PETER RYAN: Initial estimates point to revenue and productivity losses of more than $20 billion.

But on the streets of Jackson, Mississippi, government workers stood down without pay during the shutdown say the system of gridlock and deadlock in Washington can't continue.

VOX POP: It's hard to believe that grown people can't come to an understanding because one side wants it their way and they can't compromise.

VOX POP 2: I think it was horrible that it was shut down, and I'm glad it reopened, but I don't feel like it should have ever shut down. And I feel like they need to replace the people who shut it down because they represent us and I don't think they're doing a very good job. It's not "We the people" anymore, it's "Them the government!"

PETER RYAN: President Obama says domestic issues in the United States have once again fractured America's international standing.

For example, last week he said his decision not to attend the APEC (Asia-Pacific Economic Cooperation) Summit in Bali gave China the upper hand in trade negotiations.

BARACK OBAMA: Probably nothing has done more damage to America's credibility in the world - our standing with other countries - than the spectacle that we've seen these past several weeks. It's encouraged our enemies, its embolded our competitors, and its depressed our friends who looked to us for steady leadership.

PETER RYAN: The US debt ceiling limit has only been extended above $16.7 trillion until early next year. So in three months, a similar standoff involving a potential US debt default could be back.

And that prospect is continuing to haunt the perceived safety of US Treasury bills, according to stockbroker David Buik.

DAVID BUIK: People are very, very concerned that a can has been picked down Pennsylvania Avenue. And the negotiations should actually start tomorrow and not as we end up towards January because the patience of the world's leading economies will run out.

I mean, for instance, China and Japan buys $2.4 trillion US Treasuries. They don't want to be exposed to an economy that is just not looking safe and there is always the danger that they'll spread their risk around.

PETER RYAN: A former chief economist at the US Federal Reserve David Stockton agrees, and he says the US Congress can't continue playing Russian roulette with US Treasury bills.

DAVID STOCKTON: I think it clearly has done damage to the US standing on the world stage, and the potential default on US Treasury securities which serve worldwide as a benchmark from which financial analysts can actually price securities.

And certainly the United States has benefited from that over time in terms of lower borrowing costs and world financial markets to the extent that we continue to play Russian roulette with the safety and security and soundness of those securities, we're going to end up paying higher costs going forward for borrowing.

PETER RYAN: The déjà vu nature of deadlocks and time bombs in Washington has been likened to Monty Python's legendary black knight sketch.

But Muhamed El Arian, head of the world's biggest bond buyer PIMCO, and a Monty Python fan, isn't laughing.

MUHAMED EL ARIAN: Someone loses a limb and says it's just a flesh wound, loses another limb, it's just a flesh wound. At some point the cumulative impact of these small cuts or big cuts or big wounds - self-inflicted wounds in the case of Congress - at some point the cumulative effect is really disastrous so they've got to be careful. We cannot play this game too many times because people will start disengaging from the system.

PETER RYAN: Back in August 2011, the ratings agency Standard & Poor's removed America's triple-A credit status in similar though less serious circumstances. President Obama is now bracing for the Fitch ratings agency to do the same.

BARACK OBAMA: The agency that put America's credit rating on watch the other day explicitly cited all of this, saying that our economy remains more dynamic and resilient than other advanced economies, and that the only thing putting us at risk is - and I'm quoting here - 'repeated brinksmanship'.

PETER RYAN: Yields on ten year Treasury bills fell back slightly today as the risk of a US debt default diminished.

On Wall Street, the S&P 500 closed at a record high as investors came off the sidelines after days of despair. The Australian share market was half a percent higher in late morning trade.

But more volatility is expected in the coming month if there's any sign of renewed uncertainty stemming from domestic politics in the United States.

SCOTT BEVAN: Business editor Peter Ryan.