Lawmakers wage see-saw battle in U.S. debt default stalemate

WASHINGTON —

The United States lurched Wednesday toward a potentially ruinous default or painful downgrade of its debt rating, as polarized politicians waged a see-saw battle with a key deadline six days away.

As top lawmakers wrestled behind the scenes with a strategy for a possible 11th-hour compromise ahead of an Aug 2 deadline, the White House said finding a compromise to raise the $14.3 U.S. debt limit was “essential and possible.”

Spokesman Jay Carney, pointing to U.S. Treasury warnings that the world’s richest country will run out of cash to pay its bills come Tuesday, said it was “essential for the health of the economy” to let Washington borrow more.

Worried global markets feared the stalemate’s possibly disastrous effects on the world economy, with U.S. stocks dropping for the fourth straight trading session while investors seeking safe haven briefly sent gold to a new record.

The Democratic-led Senate and Republican-held House of Representatives warred over rival plans that both tied spending cuts to an increase of the $14.3 trillion debt limit but some hinted they could see a way forward.

“Magic things can happen here in Congress in a very short period of time, under the right circumstances,” said Democratic Senate Majority Leader Harry Reid, author of one of the approaches the White House favors.

But even a breakthrough deal to lift the debt limit might not spare the United States from losing its sterling Triple-A debt rating, a downgrade that could raise interest rates across the already ailing US economy, analysts said.

“There has to be a credible plan to reduce the debt burden as well as the deficit levels,” said Standard & Poor’s president Deven Sharma.

U.S. stock markets sank and Treasury bond prices fell slightly under the weight of the stalemate, with the Dow Jones Industrial Average down 1.6% and the Nasdaq diving 2.7%.

After steadily falling against the euro since July 18, the dollar regained about 1.4 cents to $1.4374. It also regained slightly against the Swiss franc, which with gold has been the favored safe-haven in recent weeks, and against the Japanese yen.

Gold surged to $1,628.05, beating Monday’s record, before dropping back to the $1,615 level.

Republican House Speaker John Boehner raced to save his own debt-ceiling bill, winning over skeptical conservatives who just a day earlier had pronounced it unacceptable but now described it as increasingly appealing.

“We can’t let the perfect be the enemy of the doable,” said Republican Representative Blake Farenthold, who told reporters he had “shifted from leaning no, to leaning yes” in a vote now expected on Thursday.

Boehner was re-writing his measure to boost its spending cuts over ten years, which he has said must be greater than the amount of the debt limit increase in order to show the world that Washington will get its fiscal house in order.

But Boehner’s plan would force another debt-ceiling showdown during the 2012 presidential election, something Reid and President Barack Obama fiercely oppose, while tying future debt increases to more spending cuts.

Reid’s plan aims to put off the next debt standoff to after the election and does not include Obama’s call for raising taxes on the rich and on big corporations, a compromise in the face of lockstep Republican opposition.

But his plan, too, came up short in the assessment by the CBO, the last word in Washington’s angry spending fights.

Senate Finance Committee Max Baucus said that Boehner’s bill would die in the Senate if passed by the House and predicted an endgame that would see lawmakers “modify” Reid’s bill to make it more appealing to Republicans ahead of a scheduled month-long August break.

“The world still is run by deadlines, there are debt limits and recesses. The two together are going to help us put this together. Those little jet fumes are going to get stronger and stronger,” he quipped.

Washington hit its debt ceiling on May 16 but has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally.

If there is no deal, the United States, still recovering from the 2008 recession with unemployment hovering around 9.2%, would have to cut some 40% in spending, setting up a choice between debt payments and programs like government benefits for the poorest, most vulnerable Americans.

Asked about the potential for catastrophe, Farenthold told reporters: “Hopefully we’ll have this done by Tuesday… let’s quit foolin’ around.”

© 2011 Agence France-Presse

  • -6

    Serrano

    "raise the debt limit"

    My economics 101 teacher told us you can't borrow your way out of debt. She must have been wrong.

  • -1

    some14some

    My economics 101 teacher told us you can't borrow your way out of debt. She must have been wrong.

    was it 50 years ago? she was right then :)

  • -1

    yabits

    My economics 101 teacher told us you can't borrow your way out of debt.

    Could she print money?

  • 0

    Triumvere

    My economics 101 teacher told us you can't borrow your way out of debt. She must have been wrong.

    What did your economics teacher tell you happens when the country with world's biggest economy defaults on it's debts?

  • 0

    Foxie

    It is a good time to go shopping in the US

  • -1

    globalwatcher

    My economics 101 teacher told us you can't borrow your way out of debt.

    Did you ask your parents?

  • -1

    Yidish

    Borrow a lot, and then die young. Works every time!

  • 0

    Virtuoso

    I'm utterly convinced the US is headed for a second civil war. It will be nice and safe watching it on my cable TV here in Japan.

  • -1

    Dalkrin

    I am calculating that the US has a chance of default. I have long foreseen this day coming. Not simply because of the debt, deficit, and reckless budget efforts. Indeed, fiat currencies are all over the world, lacking any firm backing by gold. We could be on the cusp of a new dark ages. I am stocked up at home, armed, and grimly awaiting whatever may come.

  • -1

    Virtuoso

    Wow, Dalkrin. Might I remind you that after you run out of bullets you can grasp your weapon by the barrel and swing it as a club, the way Fess Parker did with Old Betsy at the Alamo. I'll look for you on CNN. It'll be like Waco all over again.

  • 1

    SuperLib

    My economics 101 teacher told us you can't borrow your way out of debt.

    You just cut spending to the point where you can't afford rent anymore, all so you don't have to ask your boss who makes over $250,000 a year to pay you a fair wage.

  • -1

    SamuraiBlue

    Virtuoso

    Before a civil war I believe the GOP will split the party with the new one call the US Tea Party. LoL

  • 0

    BreitbartVictorious

    Before a civil war I believe the GOP will split the party with the new one call the US Tea Party. LoL

    Emperor Obama will outlaw any opposition party before it gets to that.

  • -1

    BreitbartVictorious

    Jonah Goldberg likens Obama to Nero, fiddling too long, and now the building where he resides, is in flames:

    "Okay, you guys break up into different groups and come up with a series of proposals about how we get out of the building. I will then negotiate with each of you separately and then together, and then separately. Then I'll get on Skype and tell the world what I think of your respective plans and criticize you for their lack of seriousness. I will insist that we have balanced approach of applying both water to the fire and opening the windows, which some say will only provide more oxygen for the flames. But my base says window-opening is essential. Oh and I will blame all of the gasoline I threw around on the lower floors of this building on the guy who moved out two years ago. And I will veto any plan that requires we have a new plan should we get stuck on another floor. And, did I mention this mess was created by the former tenant and....ahhh what's that smell?

  • 0

    chewitup

    Jonah Goldberg sounds like an educated idiot with overactive imagination inspired by LSD.

  • -1

    BreitbartVictorious

    Jonah Goldberg sounds like an educated idiot with overactive imagination inspired by LSD.

    There's an intelligent comeback.

  • 1

    chewitup

    And so is this BV:

    http://en.wikipedia.org/wiki/File:USFederalDebtasPercentofGDPbyPresident.jpg

    How anyone can argue that Bush II has nothing to do with the massive debt beggars belief. I don't blame Bush for the initial rise when he took office, but after 8 years it went into a skyrocket under him. Superman could not turn that around in two years!

  • 0

    yabits

    Regarding Jonah Goldberg's analogy, President Obama is actually trying to deal with a group of Republican pyromaniacs not to turn off the supply of water to the fire-fighters. The pyros are holding out for a strict "upper-temperature" limit to the burn.

  • 0

    SuperLib

    Looks like McCain is now speaking out against the Tea Party crazies:

    http://www.latimes.com/news/nationworld/nation/la-na-mccain-tea-party-20110728,0,2277765.story

    Republican leaders are using WSJ editorials talking about Lord of the Rings in order to attack their other Republicans....while the whole world watches....heh. I really don't see how this group of dysfunctional misfits will be able to agree with each other. Meanwhile, their loyal supporters, who probably don't even know if they agree with each other or not, keep attacking Obama while their party implodes. Adios, amigos.

  • 1

    Laguna

    This just in: House freshmen are now demanding a return to the gold standard as their price for raising the debt ceiling! They also are requiring that credit cards be fabricated from parchment because "that is how the founding fathers shopped."

  • -1

    Virtuoso

    While American politics is going down the commode, Rupert Murdoch and Fox News is laughing all the way to the bank.

  • 0

    Serrano

    I'll bet if Ralph Nader had been elected president, this fiasco would never have come to pass.

  • -1

    Laguna

    Johna Goldberg writes about the economy as he writes about anything else: the way his think tank masters command. He's so reactionary he makes caesium look stable. That hack is truly the Village Idiot of the Internet,

  • 0

    sailwind

    The U.S is broke and deep in debt. Asking to borrow more to spend on the national credit card is insane. No offense, but damn it those that follow after me do not deserve to be saddled with this debt. They will be and that is not the legacy I wish to impart to them. What happened to my country? We became so selfish and it is all me me me? Cut the spending, cut the credit card and let Americans do what they do best, be hungry for a better life for their kids and do what it takes to make it happen.

  • 0

    Serrano

    sailwind: "What happened to my country?"

    It's being run by a bunch of kids who think they're in a goddamed candy store.

  • 0

    TumbleDry

    End the Fed, fire Obama, put Jackson back in power and let the government control the money supply. Don't trust the Squid and their puppets.

  • -1

    SamuraiBlue

    Serrano

    It's being run by a bunch of kids who think they're in a goddamed candy store.

    In someways yes but the politicians are only good as the constituents. What is the voting rate of the US, 40~50%? Majority of the US voters needs to wake up and really take a long hard look on how their representatives are doing their jobs. The US also needs to reconsider on how political campaigns are runned and how a small group of people are influencing the outcome. It also needs to scrutinize if the two party system is really working for them since that is the BIGGEST problem at the moment.

  • 0

    Serrano

    Tumble - Put Jackson back in power? Who's Jackson?

    Don't trust the squid? Who's the squid?

  • 0

    TumbleDry

    Serrano: 1. the president 2. the one controlling the jars.

  • 1

    BreitbartVictorious

    laguna:

    Johna Goldberg writes about the economy as he writes about anything else: the way his think tank masters command.

    Who are his think tank masters? I would be most interested to know. Got any names for us?

  • -1

    BreitbartVictorious

    What's Obama's plan?

    Why is it we still cannot see what course our president believes in?

  • -1

    chewitup

    What's Obama's plan? Why is it we still cannot see what course our president believes in?

    I got a better question. Why is it you still cannot do a google search?

    http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/trs.pdf

  • 0

    SuperLib

    sailwind: Asking to borrow more to spend on the national credit card is insane. No offense, but damn it those that follow after me do not deserve to be saddled with this debt.

    Yes, kids, I helped put us into the depression that wiped out your college funds because I just couldn't handle lowering the debt in a responsible way over time. I threw a tantrum and decided to just default on everything because I wanted to send a message. And that message is stupidity. You're welcome.

  • 1

    Heythia

    Funny how this board is blaming the GOP for the US default. Last I checked, nobody wanted obamacare and it costed billions to implement and it's still not doing anything. Then Obama wasted more money waging unnecessary wars for absolutely no reason. Obama=Bush II.

    The only change I see is the one in my pocket

  • 2

    Columhcille

    I never formally studied economics.. but... in my family my grandfather always said "if you don't have extra money in your pocket for it right now, then you don't need it"....he was a very monetarily wealthy man later in life because of it.

    And honestly I don't understand how the debt ceiling being raised helps. Borrowing more money doesn't make sense at all. Every American has had to stop spending as much money.. downsize expenses in every category etc etc in order to lower their own cost of living and not to go into debt further so doesn't that work on a larger scale, too?

  • 0

    BreitbartVictorious

    Let's not forget that Bush went through four chief financial advisors in only his first two years - - Goolsbee, Romer,Orzag and Summers. It's clear that Bush could not work well with others, or did not like it being demonstrated to him that he did not understand free market economics. Bush, though he had super majorities in the House and Senate, chose to focus not on reducing the debt but on a health care plan the majority of Americans did want. And let's not forget Bush went more than 2 years without presenting the American people a federal budget - unprecedented.The only budget Bush submitted was shot down in the Senate 97-0. What a loser! But here's what really burns me up: Bush, it might be painful for his supporters to remember, enlisted Clinton to go on national TV and inform the American people that he was reneging on his pledge to eliminate tax cuts for the wealthy. There are rumors that Bush's own Chicago residence, obtained through a sweetheart deal from convicted financier Tony Rezko, is 'underwater.' But then, Bush and his wife were deep in debt into their 30s...more proof that he is nowhere near as brainy as we were told. Bush, after basically locking the opposition out, rammed through an 860 billion dollar stimulus package that the majority of economists now say actually worsened the economy. And what was his reaction? At the presser he just smirks and chuckles and tells the country, "Uh, shovel-ready was not as shovel-ready as we expected."

  • -1

    chewitup

    Last I checked, nobody wanted obamacare and it costed billions to implement and it's still not doing anything. Then Obama wasted more money waging unnecessary wars for absolutely no reason. Obama=Bush II.

    Huh? We are talking about TRILLIONS here and you are worried about mere billions? That is like needing a hundred dollars and you begin by scrounging under the sofa for quarters! The unnecessary wars began in 2001 under a Repugnican president who made the final call and kept them both going for the rest of his double tenure.

  • 1

    chewitup

    And let's not forget Bush went more than 2 years without presenting the American people a federal budget - unprecedented.

    Yeah, you mean Obama. We get it. But you have made this claim so many times. Except what years are you talking about?

    He made one in 2009 for 2010: http://www.npr.org/news/specials/2009/budget/

    He made one in 2010 for 2011: http://www.nytimes.com/interactive/2010/02/01/us/budget.html

    He made one in 2011 for 2012: http://www.nytimes.com/packages/html/newsgraphics/2011/0119-budget/index.html

    Maybe you really did mean Bush that time??

    Dude, if you are going to be so gullible for silly blogs that lie to you again and again, why not just be believe the people who keep correcting the lies you keep cut and pasting?

  • 0

    arrestpaul

    Columhcille - And honestly I don't understand how the debt ceiling being raised helps. Borrowing more money doesn't make sense at all. Every American has had to stop spending as much money.. downsize expenses in every category etc etc in order to lower their own cost of living and not to go into debt further so doesn't that work on a larger scale, too?

    That sums things up pretty well. The U.S. federal government is borrowing money to pay the interest on the money they have already borrowed. 43% of what they're spending is borrowed. The current spending levels of the federal government programs are slowly strangling the U.S. economy and CAN NOT be sustained. Deal with it NOW or deal with it later. That's the only choice. The various Tea Party members want to deal with it now. The Republican members need the Tea Party votes to reach any deal. The Democrats want this issue to go away until after 2012.

    The Democrats refuse to accept any Republican bill and don't have the votes to pass their own version.

    I think the taxpaying voters should start demanding that Congress resign if Congress can't pass a "spending/debt ceiling" bill. Just like in a parlimentary system. That would certainly make things interesting, wouldn't it.

  • 0

    arrestpaul

    chewitup - The unnecessary wars began in 2001 under a Repugnican president who made the final call and kept them both going for the rest of his double tenure.

    You forgot to mention Obama's personal attack against Libya.

  • 0

    arrestpaul

    chewitupJul. 29, 2011 - 01:35AM JST

    What's Obama's plan? Why is it we still cannot see what course our president believes in?

    I got a better question. Why is it you still cannot do a google search?

    Talk vs Action. Obama "talks" about a lot of things. Is there an actual "Obama" bill in either house of Congress? Has there been one? Will there be one?

    Obama's campaign speeches are not a form of leadership.

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