While President Barack Obama publicly presses congressional leaders for a multitrillion-dollar agreement in deficit-cutting talks he said are “running out of time,” aides privately are negotiating the framework of a possible compromise.
As negotiators near an Aug. 2 deadline for raising the U.S. debt ceiling, the president is relying on the pulpit of news conferences to hold lawmakers to his challenge for a major deal. Out of the spotlight, he is relying on some of his top aides to press congressional leaders for a more likely agreement.
Time is working against leaders as jockeying for public positions continues, with House Republicans planning a vote this week on legislation to limit spending and tie a $2.4 trillion increase in the debt ceiling to a constitutional amendment to balance the budget. That plan stands little chance in the Democratic-controlled Senate. Obama called the plan not “serious.”
“The American people are not interested in the reality TV aspects of who said what and did somebody’s feelings get hurt” in the negotiations, Obama said July 15 at his second news conference of the week. “They’re interested in solving the budget problem and the deficit and the debt.”
The White House continued to reach out to lawmakers in both parties this weekend in search of a deficit-cutting deal as the default deadline looms.
White House spokesman Dan Pfeiffer said on Twitter that Obama, Vice President Joe Biden and other White House officials were discussing “various options” with lawmakers throughout the day yesterday.
Republican House Speaker John Boehner is “keeping the lines of communication open,” said his spokesman, Mike Steel. “Meetings have been occurring.”
In the Senate, a fallback plan by Minority Leader Mitch McConnell that allows the president to unilaterally raise the debt limit is moving ahead. McConnell and Majority Leader Harry Reid this weekend were negotiating changes to the proposal, with a goal of putting a measure before the Senate as early as Wednesday, said a Senate Democratic aide.
The two are still discussing ways to alter McConnell’s complex proposal, which would let the president raise the ceiling on borrowing authority by $2.5 trillion by the end of 2012 with support of just over one-third of the members of each chamber. McConnell wants the increase to occur in three stages, forcing Democrats to take a series of tough votes before next year’s elections.
Democrats are seeking to reduce the number of debt-limit votes to two, and they are also pushing to include caps on discretionary spending over the next two years, the aide said. Such caps would help forestall repeats of the government shutdown battle that dominated Congress for much of this year for the remainder of Obama’s term.
McConnell and Reid are nearing agreement on a new joint congressional committee on deficit reduction to include in the plan, the aide said.
The House’s plan to vote July 19 on an increase in the debt ceiling tied to a balanced-budget amendment will let Republicans go on record while offering no immediate resolution by the Aug. 2 deadline Treasury Secretary Timothy Geithner has set for raising the $14.3 trillion debt ceiling.
Boehner, an Ohio Republican, called the chamber’s measure “a solid plan for moving forward,” yet seemed to concede it wouldn’t be the ultimate solution to the debt impasse. “Let’s get through that vote,” he told reporters July 15, “and then we’ll make decisions about what will come after it.”
Obama says the magnitude of cuts Republicans are proposing will be harmful and should be offset by elimination of many tax exemptions to deliver revenue for a deficit-cutting plan.
“I have not seen a credible plan -- having gone through the numbers -- that would allow you to get to $2.4 trillion without really hurting ordinary folks,” Obama said. “And the notion that we would be doing that, and not asking anything from the wealthiest among us or from closing corporate loopholes -- that doesn’t seem like a serious plan to me.”
A U.S. debt default would cause panic throughout the financial system and long-term uncertainty, former Treasury Secretary Larry Summers told CNN.
“It seems to me an unthinkable financial risk to take,” Summers said in an interview on “Fareed Zakaria GPS” today. It would cause “a cascade that makes Lehman Brothers look like a very small event.”
The bankruptcy of Lehman Brothers Holdings Inc. in September 2008 was the biggest in U.S history and was followed by a collapse of credit markets and a 43 percent decline in the S&P 500.
The measure scheduled for a vote this week would cut $111 billion in spending this year, then place annual caps on spending that would limit it to 19.9 percent of gross national product within eight years, according to a summary.
As Republicans reiterated that they won’t accept a net increase in tax revenue in a deficit-cutting plan, Obama continued to argue for such an approach.
“The American people are sold” on the idea of balancing spending cuts with tax increases,” Obama said. “The problem is members of Congress are dug in ideologically.”
While the debate continues in Washington -- Boehner says they are in “the fourth quarter” -- the bond market has shown no sign of worry.
Yields on benchmark 10-year notes reached the lowest level since December as investors sought a refuge in U.S. government debt. The Treasury attracted higher than average demand at last week’s three note and bond auctions, even after Moody’s Investors Service and Standard & Poor’s last week said the U.S. may lose its top credit ratings if lawmakers fail to lift the ceiling on the nation’s borrowing limit before Aug. 2.
A failure to act before then could lead to “a situation where interest rates rise for everyone,” Obama said at his news conference, creating in effect, “a tax increase for everybody.”
Raising the debt ceiling “is not some abstract issue,” he said. “These are obligations that the United States has taken on in the past. Congress has run up the credit card, and we now have an obligation to pay our bills.”
Paying the Bills
The administration has warned that it will be unable to pay all the government’s bills and that the nation’s credit rating will be downgraded, forcing higher borrowing costs, if the debt limit isn’t raised by the deadline.
The Standard & Poor’s 500 Index rose 0.6 percent to 1,316.14 at the 4 p.m. close in New York. The gauge fell 2.1 percent last week. The Dow Jones Industrial Average added 42.61 points, or 0.3 percent, to 479.73.
The S&P 500 rallied 93 percent from its low in March 2009 through July 14 as the Federal Reserve used large-scale asset purchases to buoy the economy and companies posted earnings that beat analysts’ estimates. Of the 12 S&P 500 companies that have posted results so far this earnings season, 10 have beaten forecasts for per-share profit.