As US default looms, pressure grows to end impasse

With the United States lurching ever closer to a potentially disastrous default and no agreement in sight, President Barack Obama and top lawmakers face growing pressure on Thursday to speed up efforts to cobble together a deficit-reduction deal.

Negotiators have struggled to break their impasse and narrow the options even as an August 2 deadline looms for raising the government’s $14.3-trillion debt ceiling or else rendering the world’s biggest economy unable to pay its bills.

There have been glimmers of hope this week for a possible compromise based on a broad deficit-cutting proposal from a bipartisan group of senators that could stave off default and salvage America’s triple-A credit rating.

But the stakes are so high and the divide so wide between the Democratic president and his Republican rivals that negotiations could go down to the wire early next month.

Obama called congressional leaders to the White House on Wednesday for their first face-to-face debt talks this week in a renewed search for common ground. Afterward, aides were mostly tight-lipped about the discussions.

Obama’s separate sessions with Republicans and Democrats came after the White House, in a softening of the president’s stance, signalled he could support a short-term increase in the US borrowing limit for “a few days” if lawmakers agreed to a broad deficit reduction deal but needed more time to pass it.

The move reflected the growing political reality that time is short for Congress to approve the kind of massive deficit-cutting plan Obama is seeking before the government’s borrowing authority runs out. Failure to act by August 2 could plunge the United States back into recession and send shockwaves through global financial markets.

Democratic and Republican leaders alike have tried to reassure markets that default will be averted, but they are far from agreed on how to do it.

Republicans want any rise in the debt limit to include deep spending cuts, but they oppose any revenue increases. Democrats want tax hikes for wealthier Americans to be part of a deficit-cutting package, an option most Republicans rule out.

The Federal Reserve has been preparing for the possibility of default, ironing out what to do if the government runs out of cash in two weeks, Philadelphia Federal Reserve Bank president Charles Plosser told Reuters.

Adding to the sense of uncertainty is the fact that several proposals are being debated. None is guaranteed to pass muster in Congress, where the Republican leadership may be hamstrung by Tea Party conservatives and Obama faces discontent on his own party’s left flank.

“Several trains have left the station,” White House spokesperson Jay Carney told reporters. “It’s a decision about which train we’ll be riding when we get to the next station.”

No face-to-face talks were listed on Obama’s schedule for Thursday, though behind-the-scenes negotiations were expected.

The White House said previously that July 22 was the last day a deal could be reached in time to get legislation through Congress, but it has since backed away from that deadline.

Obama is trying to build on momentum from a proposal from a bipartisan “Gang of Six” senators that would cut the deficit by $3.75-trillion and calls for an immediate $500 billion in budget savings. But it still lacks many specifics and has yet to be embraced fully by the White House.

Another leading option was put forward by Senate Republican leader Mitch McConnell. Billed as a back-up plan, it would pass responsibility and potentially blame for raising the debt ceiling to Obama, who is running for re-election in 2012, while letting Republicans avoid explicitly approving the increases.

The stalemate on debt talks has shaken global markets, and credit rating agencies said even if lawmakers raised the debt limit in time, the country’s credit rating would still be under pressure without a broad deficit-reduction plan. – Reuters

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Matt Spetalnick
Matt Spetalnick works from Washington. Reuters Washington Correspondent Foreign Policy/National Security/White House Matt Spetalnick has over 2753 followers on Twitter.

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