Republicans and Democrats pushed dueling plans for raising the U.S. debt ceiling, unable to break a partisan stalemate over how to tackle the nation’s $14.3 trillion debt even as worries of a threatened default Aug. 2 unsettled financial markets.
House Speaker John Boehner, an Ohio Republican, prepared to force action on a shorter-term extension of the U.S. debt limit than President Barack Obama has requested, defying a veto threat and the administration’s warnings of dire economic consequences.
The Senate’s top Democrat Harry Reid, meanwhile, readied his own proposal, which would hand Obama the full $2.4 trillion in additional borrowing authority he has requested -- enough to last through the 2012 elections -- tied to a $2.7 trillion package of spending cuts that would leave Medicare and Medicaid untouched, according to a Senate Democratic aide.
Obama met in the Oval Office with Reid, of Nevada, and House Democratic Leader Nancy Pelosi of California, as negotiations to find a viable plan to avert default intensified. They reaffirmed their opposition to a short-term debt-limit increase, according to a White House official who spoke on condition of anonymity.
U.S. stock futures slid, indicating the Standard & Poor’s 500 Index will slump after rallying within 1.4 percent of a three-year high as the lack of an agreement to raise the federal debt limit intensified concern of a default.
Treasuries fell after Mohamed A. El-Erian, whose Pacific Investment Management Co. runs the world’s biggest bond fund, said the U.S. may lose its AAA debt rating even if lawmakers reach a plan to avoid a default.
The rate on the benchmark 10-year Treasury note climbed three basis points to 2.99 percent as of 9:22 a.m. in Tokyo, according to Bloomberg Bond Trader pricing. The 3.125 percent note due in May 2021 declined 1/4, or $2.50 per $1,000 face amount, to 101 1/8.
The yield increased six basis points last week. It is still below the 10-year average of 4.06 percent.
“In most likelihood, a last-minute political compromise will avoid a default but will leave the AAA rating extremely vulnerable,” El-Erian, the Newport Beach, California-based chief executive officer and co-chief investment officer at Pimco, wrote in an e-mail.
No Clear Path
The collapse July 22 of a politically challenging quest by Obama and Boehner for a deal to slice as much as $4 trillion from the long-term debt through overhauls of entitlement programs and the tax code left all sides staring at a crisis with no clear path forward and little time to spare.
Boehner told Republicans in a conference call today that no one is willing to default on the full faith and credit of the U.S., according to a person familiar with the conversation who described it on condition of anonymity.
Treasury Secretary Timothy Geithner said there was no other option than raising the debt ceiling. “The only way to limit the damage to the American people that would come from Congress failing to act is for Congress to act to raise the debt limit,” Geithner said on ABC’s “This Week.” Congress is “going to pass the debt limit increase. That’s what they’re going to do.”
Battling the Calendar
Congressional leaders were battling the calendar to do so. Boehner has told Republicans privately that the House would probably need to act on a debt-ceiling measure by July 27 in order to allow time to pass it and send it to the Senate, where procedural tactics could stall it for days, and get it cleared for Obama’s signature in time to meet the Aug. 2 deadline. That would mean introducing a bill tomorrow to comply with House rules that require legislation to be publicly available for three days before it comes up for a vote.
Reid said talks broke down “over Republicans’ continued insistence on a short-term raise of the debt ceiling.”
Such a measure wouldn’t provide certainty for financial markets “and is therefore a non-starter in the Senate and with the president,” Reid said in a statement.
The conflict carried political peril for both parties. Boehner is laying the groundwork for the task of corralling Republicans -- including the Tea Party-supported freshmen who swept him into power in campaigns that spotlighted their zeal for spending cuts -- to back a debt-ceiling increase that is likely to contain far smaller reductions than they favor.
He urged rank-and-file Republicans during today’s afternoon conference call to stick together to maximize their leverage against Obama, even though the plan might require some of them to make sacrifices.
“It’s not a game of chicken,” Representative Bill Huizenga, a Michigan Republican, said in an interview following the call. “People are looking for the speaker to come back with something significant. There is an agreement to be found, we just haven’t found it yet. People are willing to give the speaker some leeway.”
Obama was consigned largely to the sidelines as Boehner, Reid and their counterparts in the opposing parties struggled to assess what could pass the House and Senate.
Boehner told Republicans on the conference call that they needed to pull together as a team to block the president from obtaining the $2.4 trillion debt-ceiling increase all at once, without any guarantees of spending cuts. He is considering a plan that would provide an immediate, stopgap borrowing boost of about $1 trillion tied to the same amount of spending cuts, and future votes on further spending reductions tied to the remainder of the debt-limit increase.
Obama would veto such a measure, White House Chief of Staff Bill Daley said in an interview on NBC’s “Meet the Press,” warning that “markets around the world” would react negatively.
“We’ve got to get past this debt-ceiling vote,” Daley said. “It’s time to get some certainty.”
Boehner said on Fox News that while he’d prefer a compromise package, his party was “prepared to move on our own” if that proved impossible.
“There will be a two-stage process,” Boehner said on Fox. “This is about what is doable at the 11th hour.”
Boehner had said he was aiming to show progress on a plan for increasing the debt ceiling -- bipartisan or not -- today to try to minimize uncertainty before Asian markets opened.
The dollar weakened against the euro, yen and Swiss franc in early Asia-Pacific trading.
“From the markets’ point of view, a two-stage plan is a non-starter because we now know it is amateur hour on Capitol Hill and we don’t want to be painted in this corner again,” said Christian Cooper, head of U.S. dollar derivatives trading in New York at Jefferies & Co.
“There is significant risk of a downgrade with a deal that ties further cuts to another vote only a few months down the road given the significant resistance to do the right thing now,” Cooper said.
Against the euro, the dollar declined to $1.4384 in early trading, from $1.4360 late on July 22. It fell to 78.13 yen from 78.54. Standard & Poor’s 500 Index futures expiring in September lost 0.9 percent to 1,329.40 at 9:19 a.m. in Tokyo. Dow Jones Industrial Average futures lost 108 points, or 0.9 percent, to 12,513.