President Barack Obama said Republicans and Democrats are in “rough agreement” on their plans to raise the U.S. debt limit with just four days before a threatened U.S. default and the time for compromise is “now.”
House Republicans said they have the votes to pass House Speaker John Boehner’s plan today. Obama opposes that plan. Senate Majority Leader Harry Reid said he will take action to move to a vote on his competing plan, and at the same time held out hope for a deal with Republican leaders.
“This is not a situation where the two parties are miles apart,” Obama said at the White House. “There are plenty of ways out of this mess.”
House Republican leaders, four days before a threatened U.S. default and facing stiff resistance within their ranks to raising the U.S. debt ceiling, are planning to make a second try at passing legislation that is headed for a Senate roadblock and threatened Obama veto.
As the House deadlocked, Reid said today he has asked Senate Republican leader Mitch McConnell to meet with him and “negotiate in good faith knowing the clock is running down.”
Reid said he will take action in the Senate by the end of the day on his rival bill.
“This is likely our last chance to save this nation from a default,” said Reid, after speaking with Treasury Secretary Timothy Geithner about the impact of inaction. “Secretary Geithner says it’s already started,” Reid said. “The international community is extremely worried.”
U.S. stocks fell, extending four days of losses. The Standard & Poor’s 500 dropped 1.1 percent to 1,285.79, its lowest level for the month, at 9:36 a.m. in New York. The Dow slipped 119.42 points, or 1 percent, to 12,120.69.
Boehner was forced forced to scrap action on his measure late last night. They are rewriting the bill for a second time this week after face-to-face meetings with recalcitrant lawmakers failed to yield the votes to push it through the House.
Skeptics concerned that the plan wouldn’t do enough to rein in the debt were insisting on conditioning part of the borrowing boost on congressional passage of a balanced budget amendment to the Constitution.
The measure should be amended to “something transformative that transcends election cycles and has some degree of permanency to it,” said Republican Representative Trey Gowdy of South Carolina, a freshman opponent of the measure who met with House leaders for three hours last night as they struggled unsuccessfully to build support for the bill.
The delay was a setback for Boehner and his leadership team, forcing them to delay a vote until today. They implored Republicans to back a measure that Obama’s advisers have said he would veto and Senate leaders promised to quickly defeat.
The Treasury Department has set an Aug. 2 deadline for raising the $14.3 trillion debt limit to avert a default. Senate Democrats, working to break the impasse, were trying to devise a strict enforcement mechanism to guarantee future deficit savings, according to Democratic officials.
There was little time to strike a deal, though Democrats said the demise of the House bill may force a compromise.
“I hope now the Republicans will come back to the table to negotiate a bipartisan, balanced agreement,” House Minority Leader Nancy Pelosi of California said as she left the Capitol near midnight. “They’ve taken us really to the brink of economic chaos.”
Behind the scenes, officials said, talks on a potential deal centered on how to force future deficit-cutting by Congress, by setting up consequences -- such as automatic spending cuts or tax increases, or some combination of the two - - if the savings aren’t achieved.
Deadlock Before Breakthrough
“Around here, you’ve got to have deadlock before you have breakthrough,” said Senator Kent Conrad, a North Dakota Democrat and chairman of the Budget Committee. He said the question being debated privately is, “How do you assure people you actually get the savings?”
Boehner’s measure would provide an immediate $900 billion debt-ceiling increase while cutting spending by $917 billion. It would allow Obama to seek a second, $1.6 trillion installment of borrowing authority if Congress enacted a law by Christmas to slash deficits by $1.8 trillion. That would set up yet another debt-limit showdown early next year if lawmakers were unable to agree to such a plan.
Obama has called such an approach unacceptable, saying it could lead to a downgrade of U.S. credit and continued economic uncertainty. Democrats are trying to hatch an alternative set of triggers -- delinked from the debt-limit increase -- to break the impasse.
Democrats are united in opposing a two-stage plan that would force another battle over raising the debt limit in about six months. All 51 Senate Democrats and two independents signed a letter pledging to oppose Boehner’s proposal.
If the House measure passes, Reid said he will immediately move to put it aside, paving the way for Senate votes this weekend on a possible compromise to avert a default.
The U.S. Treasury will give priority to making interest payments to holders of government bonds if lawmakers fail to raise the debt-ceiling, according to an administration official who requested anonymity because no announcement has been made. The Treasury has said about $90 billion in debt matures on Aug. 4, more than $30 billion comes due Aug. 15 and more than $500 billion matures in all of August.
Boehner, an Ohio Republican, defended his plan, calling it “a sincere, honest effort to end this crisis in a bipartisan way.”
Still, Boehner failed -- while lawmakers and their staffs ate takeout pizza and scuttled from meeting to meeting in the Capitol -- to sway holdouts determined to oppose his plan.
A parade of lawmakers, including South Carolinians Gowdy and Tim Scott, Jason Chaffetz of Arizona, Jim Jordan of Ohio, Dennis Ross of Florida and Louie Gohmert of Texas, emerged from the sessions last night saying they still couldn’t back the bill. Voting yes “assures we get to watch them vote it down,” Gohmert said of the Senate. “That’s not terribly helpful.”
The Senate may begin voting this weekend on an alternative proposal from Reid to raise the debt ceiling by the full $2.4 trillion Obama has requested, while cutting $2.2 trillion over a decade. If the Senate can reach a compromise, it could hitch a ride on that measure and clear Congress within days.
Treasuries advanced as a solution to the budget deadlock eluded politicians. Yields on 30-year bonds fell today as much as five basis points to 4.21 percent, the lowest level since July 20.
Rates on six-month bills due Aug. 4 climbed to 0.24 percent, the highest since they were issued in February, in a sign investors are growing more concerned lawmakers will fail to reach an agreement.
There is already overlap between Boehner’s plan and Reid’s. Reid dropped Democrats’ insistence on tax increases. Both proposals take as their starting points a cut of close to $1 trillion in discretionary spending over 10 years, and both establish bipartisan congressional committees to recommend future savings leading to a guaranteed up-or-down vote by year’s end.
The key question being discussed now, said North Dakota’s Conrad, is, “If the special committee fails for whatever reason -- if it deadlocks, if it doesn’t come up with the savings --how do you have a fallback?”
Obama administration officials are to brief the public no earlier than after financial markets close today on priorities for paying the nation’s bills if the debt limit isn’t raised, a Democratic official said.
Bankers including Goldman Sachs Group Inc. Chairman and Chief Executive Officer Lloyd Blankfein and JPMorgan Chase & Co. (JPM) chief Jamie Dimon called on Obama and Congress to raise the federal debt limit to steer the U.S. government away from the threat of default.
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