US rushes to avert disastrous default

2011-07-25 07:54

Washington – The White House and top lawmakers struggled for a deal to save the world’s richest country from a disastrous default on its debt, amid fears of a panicked reaction from investors around the globe.

President Barack Obama met at the White House yesterday with Democratic Senate Majority Leader Harry Reid and Democratic House Minority Leader Nancy Pelosi to map their way forward in the standoff.

They were expected to discuss a new approach to raise the $14.3 trillion US debt ceiling by some $2.5 trillion, allowing Washington to pay its bills past an August 2 deadline, while cutting a similar amount of spending over 10 years.

The strategy, detailed by a Democratic official on condition of anonymity, would also achieve Obama’s goal of avoiding another politically painful vote on the issue before he faces reelection in November 2012.

A White House official said on condition of anonymity after the meeting that the leaders updated Obama on the status of the talks and “reiterated our opposition to a short-term debt limit increase”.

Earlier, House Speaker John Boehner privately urged fellow Republicans to unite behind a new plan to impose steep spending cuts as the price for raising the US debt limit and promised to have more details today, two sources said.

Boehner said on a conference call with his restive majority that “no one is willing to default” and warned that Republicans may have to make “sacrifices” in any final compromise to ensure passage in the House and Senate.

Boehner, who faces stiff resistance from many Republicans to any compromise with Democrats, told House Republicans in a conference call Saturday that he favoured a two-step increase paired with $3-$4 trillion dollars in cuts.

The fate of the rival plans was unclear, but both chambers faced a time-consuming process to pass identical legislation and send it to Obama to sign into law with the clock ticking down to August 2.

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 but can only do so another nine days.

Finance and business leaders have warned failure to raise the US debt ceiling by then would send shockwaves through the fragile world economy, while Obama has predicted a default would trigger economic “Armageddon”.

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