Top lawmakers rolled out dueling debt plans today that offered little prospect for compromise, increasing the threat of a ratings downgrade and national default, as President Barack Obama prepared to address Americans on the impasse.
Little more than a week before the August 2 deadline to raise the $14.3 trillion U.S. debt ceiling, Republican and Democratic leaders traded blame in an acrimonious standoff as they pursued separate budget proposals, with no clear path to bring them together.
The stalemate rattled investors worldwide, sending stocks and the dollar down and pushing gold to a record high, but falling far short of the panicky sell-off that some politicians in Washington had feared after weekend talks broke down.
Raising the stakes and seeking to seize back control of the debate, the White House said Obama would address the nation at 9 p.m. EDT (0100 GMT) about “avoiding default and the best approach to cutting deficits.”
House of Representatives Republicans unveiled details of a two-stage deficit reduction plan that would start with an initial $1.2 trillion in savings over 10 years. It is sure to be rejected by Obama because it would raise the debt limit for only a few months, meaning the issue would have to be revisited early next year.
Obama’s Democrats formally presented their competing plan for $2.7 trillion in deficit reduction over the next decade but with a debt limit increase that would carry through the November 2012 elections, when Obama and many lawmakers are up for re-election.
Republicans control the House and Democrats control the Senate.
Republican House Speaker John Boehner dismissed the Democratic plan as “full of gimmicks.” Senate Democratic Leader Harry Reid insisted “extremists” within the Republican Party must not be allowed to dictate the outcome of the debt and deficits debate.
Neither plan may be enough to avert a downgrade by ratings agency S&P, which has indicated it wants to see a $4 trillion deficit reduction plan over 10 years. Critics said both sides appeared more interested in scoring political points than forging compromise as the 2012 campaign gathers steam.
With markets increasingly focused more on the risk of a damaging cut in U.S. Treasury bonds than on the prospects for an unprecedented federal default, the stage was set for growing investor alarm if the stalemate goes down to the wire.
CHORUS OF GLOBAL CONCERN
Joining a growing chorus of global concern as the world’s largest economy showed signs of legislative dysfunction, the International Monetary Fund urged swift U.S. action on its debt to avert broad negative fallout.
Obama and congressional leaders have tried to reassure global markets that the country will be able to service its debt and meet other obligations after August 2, when the United States will run out of money to pay all of its bills.
Boehner’s plan would raise the debt limit in stages, forcing Congress to confront the politically painful issue again before the November 2012 election, when Obama is seeking a second term.
Boehner will push for legislation to cut $1.2 trillion in spending over 10 years and provide a short-term, $1 trillion increase in the government’s borrowing limit but include no tax increases. Obama has said he opposes a short-term debt limit hike and instead wants about $2.4 trillion in new borrowing authority, which would extend through 2012.
“It would be irresponsible for the president to veto this legislation,” Boehner told reporters.
Reid laid out a $2.7 trillion spending-cut plan that includes savings from domestic and defense programs and would provide borrowing authority to meet needs through 2012. It would include $1.2 trillion in savings that Democrats say Republicans already had agreed to.
The White House quickly endorsed Reid’s approach and told the Republicans the “the ball is in their court.”
Secretary of State Hillary Clinton sought to reassure Asia, which holds close to $3 trillion in U.S. government debt, that the United States would reach a deal and avoid default.
“I’m confident that Congress will do the right thing and secure a deal on the debt ceiling and work with President Obama to take the steps necessary to improve our long-term fiscal outlook,” she said in a speech in Hong Kong.