US President Barack Obama and top US lawmakers searched for an elusive deal yesterday necessary to avert an unprecedented debt default by the US that economists warn could have a catastrophic ripple effect on financial markets.
Behind closed doors at the White House and in the marbled halls of Congress, polarized US leaders struggled to come together despite fears that the stalemate could send global markets tumbling, starting with early trade in Asia today.
In a late flurry of frustration, Democratic Senate Majority Leader Harry Reid accused Republicans on Saturday of bringing the world’s richest country to “the brink of default” by rejecting a deal that would last through the next year’s US election.
“Anything less than that will fail to provide the certainty that the markets — and the world — are looking for, risking an immediate downgrade of America’s credit rating,” he said at day’s end. “Now is the time for cooperation.”
Hours earlier, Republican House Speaker John Boehner told members of his majority on a conference call that he hoped for a deal within 24 hours to soothe investor worry, notably in Asia, a participant told reporters.
“We are working, and I’m confident there will be resolution. There has to be,” Boehner told the group, promising “real cuts” in spending that help put cash-strapped Washington on a “sustainable” path, the source said.
The speaker said the hard-fought negotiations centered on a two-step process to cut between US$3 trillion and US$4 trillion in spending over 10 years as part of a deal to raise the US$14.3 trillion US debt limit by an Aug. 2 deadline, the participant said.
Obama has called for a single increase to last through next year’s election, when he seeks a second term in a contest defined by his handling of the ailing US economy and shaped by Republican anger at government spending.
Washington hit its debt ceiling on May 16, but has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to pay its bills and continue operating up to the fast-approaching day of reckoning.
Finance and business leaders have said that failure to raise the US debt ceiling by then would send shockwaves through the world economy, while Obama has predicted a default would trigger economic “Armageddon.”
With unemployment already stubbornly high at 9.2 percent, a default could send the US economy tumbling back into recession.
Key leaders including Boehner, Reid, Republican Minority Leader Mitch McConnell and Democratic House Minority Leader Nancy Pelosi held a pair of 50-minute meetings, first at the White House, then in the speaker’s office.
In response to Reid’s broadside, Boehner spokesman Michael Steel declared “a two-step plan is inevitable” and said Republicans “believe that defaulting on the full faith and credit of the United States is not an option.”
Republicans have called for spending cuts over 10 years at least equal to the US dollar amount of any debt limit increase, while vowing to reject Obama’s call for raising taxes on the rich and corporations.
Democrats have pledged to defend cherished social safety net programs funded by the government, which the president has targeted for cuts and said the most well-off Americans must shoulder a greater burden.
Pelosi accused Republicans of looking “to walk away from 98 percent of the American people to protect the assets of the top 2 percent of the wealthiest people in our country.”
McConnell said leaders of both parties in Congress were “committed to working on new legislation that will prevent default, while substantially reducing Washington spending.”
“Over this weekend, Congress will forge a responsible path forward,” said Boehner, who shocked Washington with a decision late on Friday to quit talks with Obama in favor of negotiations with fellow congressional leaders.
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