Debt-Limit Prospects Gain as Parties Open to Short Deal

U.S. lawmakers for the first time have embraced one possible path out of the fiscal impasse, a short-term deal to avoid default, even as they battle over how to make it happen.

The sticking point remains House Republicans’ demand that the deal include policy changes that cut spending; Senate Democrats reject anything beyond extending the debt ceiling. The government shutdown in its 10th day adds to the stakes.

Treasuries and U.S. stocks have declined this month amid the standoff. If the U.S. doesn’t raise the debt limit by Oct. 17, the government will have $30 billion plus income revenue to pay its bills. It would start missing scheduled payments, including benefits, salaries and interest, between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

U.S. Treasury Secretary Jacob J. Lew warned Congress today that “uncertainty” over the debt limit is starting to stress financial markets and trying to time an increase to the last minute “could be very dangerous.” Lew’s remarks were in testimony prepared for a Senate Finance Committee hearing.

That followed a warning yesterday by Angel Gurria, the secretary-general of the Organization for Economic Cooperation and Development. “‘The current political deadlock in the United States is needlessly putting at risk the stability and growth not only of the U.S. but also the world economy,’’ Gurria said in a statement. ‘‘We still see the probability of failing to raise the debt ceiling as low, but as the government shutdown drags on, the level of concern is ratcheting up.’’

Obama Warning

President Barack Obama has warned of catastrophic consequences if the $16.7 trillion debt limit is breached.

Just What Are They Talking About?

‘‘We’re not going to vote against making sure that America pays its bills,’’ Representative Steny Hoyer of Maryland, the second-ranking Democrat in the House, said after leaving a meeting with Obama yesterday. ‘‘We think it ought to be longer-term.’’ Obama has already said he could accept a short-term deal without policy conditions.

House Republicans will meet at 10 a.m. in the Capitol to discuss their strategy. All Senate Democrats will meet with Obama at 1:45 p.m. in the White House. At 4:35 p.m., 18 House Republican leaders and committee chairmen will meet with Obama.

Global Concern

Highlighting global concern about the U.S. political standoff, Hong Kong’s futures and options market operator increased the discount on Treasury bills used as collateral for margin requirements, citing concern that the U.S. is at risk of a default. Rates on Treasury bills due Oct. 24 advanced to 0.40 percent. They were zero on Sept. 17.

Senate Democrats will press ahead with their preferred plan, which would push the next debt-limit fight into 2015 and include no policy conditions.

Senate Majority Leader Harry Reid is confident he can muster the needed 60 votes to advance the bill in an initial Oct. 12 test vote, said a Senate Democratic aide. Reid’s long-term bill, which could reach the House on Oct. 16, may put pressure on House Speaker John Boehner to act.

Reid must gain support from at least six Republicans. One way to do that would be to promise votes on Republican-backed amendments that Democrats could defeat, the aide said. A second vote with a 60-vote threshold would be required.

U.S. stock index futures rose on optimism among some traders that a deal is closer. Standard & Poor’s 500 Index futures rose 0.8 percent, suggesting that the benchmark may climb for a second day today. The S&P 500 has lost 4 percent since Sept. 18.

Weighing Proposal

House Republicans are weighing a short-term increase in the debt limit, and Senate Democrats aren’t ruling one out, according to aides of both parties who spoke on condition of anonymity yesterday to discuss their strategies.

House Republicans haven’t decided how long an extension they would support or whether it would include policy conditions and how to advance it, a House Republican aide said. One possibility is an extension of four to six weeks.

‘‘Within the Republican caucus, there’s no agreement, and this is the challenge we’ve had all along,” Representative Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, said today on MSNBC’s “Morning Joe” program.

Republican leaders have been meeting with party members to talk about ideas. Representative Paul Ryan, a Wisconsin Republican and chairman of the House Budget Committee, advocates starting broader budget negotiations with Democrats.

Van Hollen said lawmakers “shouldn’t be tying raising the debt ceiling to any specific demand.” Still, he said, “we welcome the opportunity to have a discussion on the budget.”

Voters Dissatisfied

The shutdown and debt-limit debate have hurt Republicans’ standing with voters, according to a Gallup poll released yesterday. It found that 28 percent of Americans view the party favorably, down 10 percentage points since September and at the lowest point since Gallup began asking the question in 1992.

Senate leaders would be open to a short-term increase in the debt ceiling, a Senate Democratic aide said yesterday. Democrats would insist that any subsequent debt-limit increases wouldn’t require agreement by the parties on long-term fiscal and health-care policy.

Boehner, an Ohio Republican, on Oct. 8 rejected Obama’s idea of passing a debt-ceiling increase now and negotiating later on broader fiscal issues and the health-care law. Boehner labeled that “unconditional surrender” and instead sought immediate talks with Obama.

More Time

Kevin Brady, a Texas Republican, said lawmakers may need more time to on the debt ceiling “to make sure we get it right.” Republicans, he told reporters yesterday, “are not for defaulting.”

Advancing a debt-limit bill without major policy conditions through the House could prove difficult and might require Boehner to seek Democratic votes. Republicans control a 232-200 majority in the House.

“If you had a clean debt ceiling increase without any kind of reforms to control spending that would probably lead to another downgrade in our credit ratings,” Representative Steve Scalise, a Louisiana Republican and head of the Republican Study Committee, told reporters yesterday. The group includes lawmakers who advocate for smaller government.

Boehner and House Majority Leader Eric Cantor of Virginia met yesterday with the top two House Democrats, Nancy Pelosi of California and Hoyer.

Democratic Plan

Democrats, who control 54 seats in the 100-member Senate, would need the support of at least six Republicans on procedural votes to pass their bill.

The bill would suspend the debt ceiling through Dec. 31, 2014. Because the Treasury Department can use what are called extraordinary measures to stave off default, another increase wouldn’t be needed until sometime in 2015. The previous debt-limit suspension expired on May 18 and the extraordinary measures are lasting five months.

Some Senate Republicans, including Susan Collins of Maine, Saxby Chambliss of Georgia, Lisa Murkowski of Alaska and Lamar Alexander of Tennessee, didn’t rule out backing the Democrats’ plan. They said they must first see details.

One Republican senator -- Mark Kirk of Illinois -- said he would support a “clean” debt-ceiling measure.

At a White House news conference Oct. 8, the president again insisted that he wouldn’t negotiate under the risk of default or a government shutdown, comparing Republicans to hostage-takers and extortionists.

The government shutdown started Oct. 1 after Republicans insisted that further funding for many programs must be tied to a one-year delay in the mandate that individuals purchase health insurance.

Obama and Senate Democrats refused, and the resulting furloughs and agency shutdowns have slowed mortgage closings, small-business loans and nutrition assistance to poor mothers. Some programs, such as Social Security, continue uninterrupted.

The House continued a series of bipartisan votes to fund narrow pieces of the government, including the Food and Drug Administration and military death benefits. The House is now scheduled to be in session on Saturday, Oct. 12.

Obama and Senate Democrats reject the piecemeal approach, saying Republicans shouldn’t get to pick and choose politically popular items.

To contact the reporters on this story: Roxana Tiron in Washington at rtiron@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net; Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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