President Barack Obama told congressional leaders to report to him within two days on what debt-limit options their members can support, Democratic and Republican officials said after today’s negotiating session.
The president scheduled a news conference tomorrow to discuss the debt talks. Obama and congressional leaders, who met today at the White House for an hour and 20 minutes, don’t plan another session tomorrow and instead will focus on sounding out their party members in Congress, Democratic and Republican aides said on condition of anonymity.
After the meeting ended, Standard & Poor’s Ratings Services announced it may downgrade the U.S. top-level credit rating, saying there is an increasing risk of a substantial policy stalemate enduring beyond any near-term agreement to raise the debt ceiling.
The deadlock on fiscal policy has “only become more entangled” since April 18, when S&P placed a negative outlook on the U.S. AAA long-term rating, the service said in a statement. Moody’s Investors Service placed the nation’s credit rating under review for a downgrade yesterday.
Jeffrey Goldstein, Treasury undersecretary for domestic finance, said in a statement the warning highlighted the need to “act expeditiously to avoid defaulting on the country’s obligations and to enact a credible deficit-reduction plan that commands bipartisan support.”
House Republicans and Democrats scheduled separate caucuses tomorrow morning. Obama told the lawmakers he may call another meeting over the weekend if no path forward has emerged by the following day, officials from both parties said.
Aug. 2 Deadline
U.S. borrowing authority will be exhausted on Aug. 2 if lawmakers don’t reach an agreement to raise the $14.3 trillion debt limit, according to the Treasury Department. Republicans have demanded major spending cuts in exchange for their votes on the debt limit, while rejecting Democrats’ call for more tax revenue from high-income people.
Officials from both parties described the session as cordial, following a tense meeting the previous day, and largely devoted to a presentation of options related to health-care spending and tax revenue. The White House pressed for an extension and possible expansion of the current 2 percentage point payroll tax deduction set to expire Dec. 31, said a Democratic official.
Obama continued to press for a broad agreement, which he told negotiators could include $2 trillion in deficit reduction if all sides gave a little, said a Democratic official. The president said the alternative would be a plan to raise the debt limit enough to get through the next election with smaller deficit savings, the official said.
Before the White House negotiating session, the fifth in as many days, Senate Democratic leader Harry Reid of Nevada and Republican leader Mitch McConnell of Kentucky were engaged in their own talks on backup options to avert a U.S. default by adding spending controls to a plan that would grant the president unilateral power to raise the debt limit, Reid told reporters today.
Senator Charles Schumer of New York, the chamber’s third- ranking Democratic leader, said while Democrats still want to see a comprehensive deal emerge from the White House-led talks, they are considering modifying a plan McConnell offered earlier this week as a “last-choice” alternative.
McConnell’s proposal would grant Obama authority to raise the debt limit in installments unless Congress disapproves by a two-thirds majority -- a near impossibility with the Senate controlled by Democrats -- while Obama would also be required to offer spending reductions.
Those cuts would be advisory, and the debt-ceiling increase would occur regardless of whether lawmakers enact the cuts, McConnell said. The idea drew criticism from both sides of the aisle, particularly from Republicans who said it would fail to curb spending.
Schumer said one option under consideration to build legislative support would couple the McConnell plan with a package of spending cuts smaller than the amount Republicans have demanded -- a dollar in spending reductions for every dollar increase in debt authority.
Another possible means of attracting votes would be to add a commission modeled along the military base-closing panels to recommend additional spending cuts, said two Republican aides familiar with the talks who requested anonymity.
Still, Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, cast doubt on the options under discussion.
“I have not yet heard a package that I believe is credible in dealing with the debt that builds off of the McConnell plan,” he said.
Senior financial regulators came to the Capitol to highlight the economic consequences of a U.S. government default.
Treasury Secretary Timothy Geithner said there is “no way to give Congress more time” on lifting the debt ceiling. He commented after meeting with Senate Democrats.
Federal Reserve Chairman Ben S. Bernanke warned in testimony to the Senate Banking Committee that lawmakers would cause a “self-inflicted wound” if they prompt a credit-rating downgrade by failing to raise the debt ceiling.
Investors showed few signs of being fazed by the drama in Washington, largely because bond traders said they considered the possibility of default remote.
The Treasury attracted higher-than-average demand for a third consecutive sale at today’s auction of 30-year bonds. The bid-to-cover ratio on the $13 billion in bonds, which gauges demand by comparing total bids with the amount offered, was 2.80, versus a 2.64 average at the past 10 sales.
The yield on 10-year Treasuries was 2.95 percent as of 3:35 p.m. in New York, according to Bloomberg Bond Trader, after falling to a low this year of 2.81 percent on July 12. That compares with an average of 7 percent during the past four decades.
“The market seems to believe that the debt-limit situation will be resolved satisfactorily,” said Jeffrey Caughron, a partner at Baker Group LP in Oklahoma City who advises community banks on investments of more than $30 billion. “Most market participants see it unthinkable that the president and the Congress would allow a default, even a partial default on U.S. obligations.”
The increasing tension between Democrats and Republicans was underscored by dueling accounts of yesterday’s White House meeting and its sour ending. Obama “got very agitated” and left the room after House Majority Leader Eric Cantor suggested a vote on a smaller deal, Cantor said in an interview.
“Don’t call my bluff; I am going to the American people,” Obama said, according to Cantor, a Virginia Republican.
Cantor didn’t speak at today’s session, a Democratic aide said.
Laena Fallon, a spokesman for Cantor, responded: “This isn’t a question about personalities -- Eric, President Obama or Harry Reid. It’s about doing what is right for the country.”
Other Democratic officials disputed Cantor’s characterization of Obama’s demeanor. White House officials, meanwhile, concede they may have to accept a smaller accord as Republican opposition to tax increases hardens and both sides acknowledge a government default could send the U.S. economy into a tailspin.
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