ibnlive » World

White House back in debt talks as deadline looms

Reuters
Aug 01, 2011 at 09:58am IST

Washington: Top congressional Republicans held fresh talks on Saturday with President Barack Obama to try to break a deadlock on raising the debt limit and expressed confidence that a default by the world's largest economy could be avoided.

While engagement with the White House after a week of poisonous political stalemate was a step forward, a deal still seemed elusive. Senate Majority Leader Harry Reid, a Democrat, said the two sides were not close to agreement with a Tuesday deadline looming to raise the government's $ 14.3 trillion borrowing limit.

"I think we've got a chance of getting there," Senate Minority Leader Mitch McConnell, a Republican, said in a verbal joust with Reid on the Senate floor that kept observers guessing about whether the divided Congress could come together to thrash out an eleventh-hour solution.

White House back in debt talks as deadline looms

House Speaker John Boehner (R-OH) (L) and Senate Minority Leader Mitch McConnell speak at a conference about the US debt ceiling crisis. (Reuters)

"Republican leaders still refuse to negotiate in good faith," Reid said.

Political wrangling around details of a compromise was expected to go into the night, but renewed White House participation in direct negotiations after being sidelined for days appeared to be a positive sign.

McConnell told reporters earlier he had spoken by phone with Obama and Vice President Joe Biden and he was "confident and optimistic" a bipartisan agreement could be reached to avoid a default.

Unless Congress raises the debt ceiling by Tuesday, the government would be barred from further borrowing after then, according to the Treasury, and could quickly run out of money to pay all its bills.

"Our country is not going to default for the first time in its history - that's not going to happen," McConnell said.

The top Republican in Congress, House Speaker John Boehner, also appeared before reporters with McConnell to express similar confidence that a compromise could be reached about ways to cut the budget deficit and raise the debt ceiling.

Holding out hope for an accord, McConnell said they wanted to have Obama involved in negotiations to ensure he would not veto any accord.

"He needs to indicate what he (Obama) will sign," McConnell said.

Before he denied that a deal was close, Reid and the top House Democrat, former Speaker Nancy Pelosi, held talks at the White House with Obama.

Outline of a deal, world watches

A day after the Republican-controlled House passed a bill to cut the deficit and raise the debt limit, the saga shifted to the Democratic-led Senate.

Earlier, McConnell called on Reid to move up a vote on his Democratic deficit reduction plan that was set for 1 am EDT on Sunday so the two sides could begin talks with the White House.

Senate Democrats' debt-limit proposal, which would cut the budget deficit by $ 2.2 trillion over 10 years, was revised by Reid to incorporate parts of a "backup plan" first proposed by McConnell. Obama would be given authority to raise the debt ceiling in three stages to cover borrowing needs through the 2012 elections when he is running for a second term.

Senate Democrats and Republicans agree on the main contours of the deal. But they were deadlocked on Saturday over what sort of mechanism should be in place to ensure that Congress will agree to further budget savings after a special committee makes recommendations.

While Republicans have proposed a variety of automatic spending cuts, they are refusing to consider automatic tax increases, according to a Democratic aide. Republicans also want to tie the debt-limit increase to passage of a balanced-budget amendment -- a nonstarter for Democrats.

Obama says any plan that would require another showdown over the debt limit in a few months would be unacceptable because it would lead to economic uncertainty, putting a damper on jobs and economic growth.

The world has watched with growing alarm as political gridlock in Washington has brought the United States close to a default, threatening to plunge financial markets and economies around the globe into turmoil.

The standoff has put the United States at risk of losing its top-notch Triple A credit rating. A downgrade could prompt global investor flight from U.S. bonds and the dollar, raising borrowing costs for Americans when the economy is already frail.

The economy grew at a rate of 1.3 percent in second quarter, according to government data.

Earlier on Saturday, the House quickly crushed the Democrats' proposal even before the Senate acted on it, rejecting the measure 246 to 173.

Separately, 43 Senate Republicans signed a letter rejecting Reid's plan, a signal the measure does not have the support needed to clear a 60-vote procedural hurdle in that chamber.

Reid said some of those who had signed the letter had reached out to Democrats to work on a deal. Democrats hope to convince some of those Republicans to allow the bill to clear the hurdle, at which point they could change it, a Democratic aide said.

Obama used his weekly radio and Internet address to urge lawmakers to strike a deal and head off what he has said would be an "inexcusable" default.

Unless there is major progress toward a debt deal, the U.S. Treasury could be forced on Sunday before Asian markets open to detail plans on which bills the government would pay if Tuesday's deadline is missed.

Analysts believe it will stop other government spending to ensure bondholders are paid to avert a wide-scale financial crisis.

Latest

More from this section

PREVIOUS  Jet crashes in Guyana, several injured

NEXT  Jet from New York crashes in Guyana; no deaths