Obama May Summon Lawmakers to Camp David to Save Debt Talks

President Barack Obama may summon congressional leaders to a Camp David summit this weekend after the latest round of White House negotiations on the deficit ended on a tense note and Moody’s Investors Service warned the stalemate could jeopardize the U.S.’s credit rating.

Obama told the lawmakers they have until tomorrow to decide whether they can reach a deal to cut the deficit or settle for a way to raise the $14.3 trillion debt ceiling before U.S. borrowing authority expires Aug. 2, two Democratic officials said.

House Speaker John Boehner told a White House official this morning that “he sees no need to go to Camp David this weekend,” according to Brendan Buck, a spokesman for the Ohio Republican.

The increasing tension between Democrats and Republicans was underscored by dueling accounts of a White House meeting that ended sourly. 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.

Senate Majority Leader Harry Reid, a Democrat, said today that Cantor has shown “he shouldn’t be at the table,” adding that “it was childish” when Cantor quit attending negotiating sessions led by Vice President Joe Biden.

Laena Fallon, a spokesman for Cantor, said in response, “This isn’t a question about personalities -- Eric, President Obama or Harry Reid -- it’s about doing what is right for the country.”

Economic Tailspin

Other Democratic officials disputed Cantor’s characterization of Obama’s demeanor, while the White House concedes it 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.

Federal Reserve Chairman Ben S. Bernanke told the House Financial Services Committee yesterday that failure to raise the debt limit would lead to a “huge financial calamity” that could add to unemployment. Unless the debt ceiling is raised, he said, the economy could be in greater peril than when Lehman Brothers Holdings Inc. went bankrupt in September 2008.

Both sides have few options for resolving the standoff quickly. Obama said he would veto any plan that doesn’t raise the debt ceiling through the 2012 elections. Republicans are demanding $2 trillion or more in spending cuts without any tax increases.

Political Posturing

Democratic officials, speaking on condition of anonymity, disputed Cantor’s assertion that Obama’s departure was abrupt and said the president had emphasized he believed the lawmakers were engaging in too much political posturing.

In a sign of concern within the financial community, the U.S.’s Aaa bond rating was put under review by Moody’s, a possible prelude to a downgrade that would trigger higher borrowing costs.

“There is a small but rising risk of a short-lived default,” Moody’s said.

Treasuries declined after Moody’s statement. The 10-year Treasury yield rose four basis points to 2.92 percent at 10:10 a.m. today in New York, according to Bloomberg Bond Trader prices.

As part of a broader $4 trillion accord, Obama was poised to accept cuts to Medicare, Medicaid and possibly Social Security in exchange for $1 trillion in revenue, mostly from repealing President George W. Bush’s tax cuts for the wealthiest Americans after 2012.

Discretionary Spending

Absent that tradeoff, the two sides had identified about $1 trillion in discretionary spending cuts and $500 billion in other savings from agriculture subsidies and other non-health- care-related spending.

That isn’t enough for the $2 trillion minimum in spending cuts that House Republicans are demanding in exchange for raising the debt ceiling through the next election. The White House insists that any deal of that magnitude must include more revenue.

The stalemate prompted Senate Minority Leader Mitch McConnell this week to offer a “last-choice” plan to give Obama unilateral power to raise the debt ceiling, in an effort to put the onus on the president to identify spending cuts. The idea drew criticism from both sides of the aisle, particularly from Republicans who said it would fail to curb spending.

Recounting how the 1995 government shutdown helped President Bill Clinton win re-election the following year, McConnell warned fellow Republicans any impasse that drove down the nation’s credit rating and led to government checks being delayed could have the same result for Obama.

‘Very Bad Position’

“He will say Republicans are making the economy worse,” McConnell said in an interview with radio host Laura Ingraham. “It is an argument that he could have a good chance of winning, and all of the sudden we have co-ownership of the economy. That is a very bad position going into the election.”

Senate and House leaders, reacting cautiously to McConnell’s proposal, are exploring ways to modify it as a backstop to prevent a government default. While Republicans are pressing for hard spending caps, the White House would only accept setting a ceiling on future deficits, perhaps by tying them to a percentage of the gross domestic product. Senate leaders are also discussing a commission with enforcement powers, according to a congressional aide.

Obama and the lawmakers discussed discretionary and other spending yesterday and plan to discuss health care and revenue, including an employer payroll tax holiday, at a meeting scheduled for today at the White House, a Democratic official said.

Camp David

A final decision on a possible Camp David retreat in the Maryland mountains hasn’t been made, said the people, who requested anonymity.

Cantor told reporters that the amount of cuts under discussion has shrunk to less than $1.4 trillion in part because he said the administration is seeking additional spending on unemployment benefits and health-care programs. Cantor said he proposed having multiple votes into next year to raise the debt limit in stages, which he said Obama rejected.

“We’re so far apart and going back on the momentum,” Cantor said.

Shortly before Obama’s departure from the meeting, he told Republicans they had two choices: Either accept revenue increases for a $2.4 trillion deal or take a deal of a lesser amount and give up on their demand for dollar-for-dollar spending cuts to match an increase in the debt ceiling so the borrowing authority will go through the election.

The gamesmanship may already be putting the U.S. credit rating at risk.

‘Dreaded’ News

The announcement by Moody’s was “the news that we have dreaded,” said House Democrat Robert Andrews of New Jersey. “I am fearing that much worse news will be right around the corner. I hope this very unwelcome news shakes people into a sense of reality.”

U.S. stock-index futures fell and the euro strengthened versus the dollar after Moody’s said U.S. may lose the Aaa credit rating it has held since 1917.

House Minority Leader Nancy Pelosi, a California Democrat, said in a statement that Obama has listened to congressional leaders’ suggestions “at extensive meetings over the past few weeks, and now we have a responsibility to act.”

To contact the reporters on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net; Hans Nichols in Washington at hnichols2@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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Obama May Summon Lawmakers to Camp David to Save Debt Talks

Joshua Roberts/Bloomberg

President Barack Obama sits with House Speaker John Boehner, a Republican from Ohio, left, Senate Majority Leader Harry Reid, a Democrat from Nevada, second from right, and Senate Minority Leader Mitch McConnell, a Republican from Kentucky, right, at the start of a meeting in the Cabinet Room of the White House in Washington, D.C., on July 10, 2011.

President Barack Obama sits with House Speaker John Boehner, a Republican from Ohio, left, Senate Majority Leader Harry Reid, a Democrat from Nevada, second from right, and Senate Minority Leader Mitch McConnell, a Republican from Kentucky, right, at the start of a meeting in the Cabinet Room of the White House in Washington, D.C., on July 10, 2011. Photographer: Joshua Roberts/Bloomberg

5:59

July 14 (Bloomberg) -- U.S. Senator John McCain, an Arizona Republican, talks about negotiations over reducing the federal deficit and raising the debt ceiling. McCain speaks with Peter Cook and Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

7:08

July 14 (Bloomberg) -- David Levy, chairman of Jerome Levy Forecasting Center, talks about negotiations over reducing the federal deficit and raising the debt ceiling, and the possibility that the government may default on its debt. Levy also discusses Europe's sovereign debt crisis. He speaks with Carol Massar on Bloomberg Television's "Street Smart." (Source: Bloomberg)

1:41

July 13 (Bloomberg) -- President Barack Obama said on “CBS Evening News with Scott Pelley” yesterday that unless the debt ceiling is raised in time, the federal government might not be able to pay Social Security and veterans’ benefits. Lizzie O'Leary reports on Bloomberg Television's "In the Loop." (Source: Bloomberg)

2:53

July 14 (Bloomberg) -- U.S. Representative Ron Paul, a Texas Republican, talks about Moody’s Investors Service's decision to put the U.S.'s Aaa credit rating under review for a downgrade and the outlook for raising the government’s $14.3 trillion debt limit. Paul speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

4:43

(Corrects panel to say U.S. was last under review for a downgrade in 1996 rather than 1995.) July 14 (Bloomberg) -- Matthew Freund, a fund manager at USAA Investment Management Co., discusses Moody's Investors Service's decision yesterday to place the U.S. credit rating under review for a downgrade. The U.S., rated Aaa since 1917, was put on review for the first time since 1996 on concern the debt threshold won’t be raised in time to prevent a missed interest or principal payment on outstanding bonds and notes, even though the risk remains low, Moody’s said in a statement. Freund speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

4:40

July 14 (Bloomberg) -- Jim Kessler, co-founder of Third Way, talks about the negotiations by U.S. lawmakers to increase the government's $14.3 trillion debt limit. Kessler speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

0:23

July 13 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke says that a failure by Congress to raise the nation’s $14.3 trillion debt limit would lead to a “major crisis” and throw “shock waves” through the financial system. Bernanke testifies before the House Financial Services Committee in Washington. (This is an excerpt. Source: Bloomberg)

3:21

July 14 (Bloomberg) -- Kenneth Schapiro, president of Condor Capital Management, talks about negotiations between lawmakers over raising the U.S. debt ceiling and the outlook for U.S. Treasuries. Moody’s Investors Service put the U.S. under review for a credit rating downgrade as talks to raise the government’s $14.3 trillion debt limit stall, adding to concern that political gridlock will lead to a default. Schapiro speaks with John Dawson on Bloomberg Television's "First Up." (Source: Bloomberg)