WASHINGTON (Reuters) - Negotiations on a sweeping deficit-reduction deal collapsed in acrimony on Friday as U.S. House Speaker John Boehner pulled out of talks with President Barack Obama, dealing a blow to efforts to avert a looming debt default.
With the deadline just 11 days away for raising the federal government's borrowing limit, a stern-faced Obama expressed deep frustration with Boehner for walking away and demanded that he and other congressional leaders meet him at the White House on Saturday.
Boehner said he could not overcome disputes with Obama over taxes and entitlement spending and said he would now try to hammer out a deal with the Democratic-controlled Senate to increase the country's $14.3 trillion debt limit by August 2.
"We have run out of time," Obama said at a hastily called news conference, saying it was "hard to understand why Speaker Boehner would walk away from this kind of deal."A deep divide over tax revenue derailed the latest negotiations, ending an ambitious bid to craft a $3 trillion deficit-cutting plan that now seems beyond reach.
The world's biggest economy will run out of money to pay its bills without a deal by the August deadline. Failure to act could push the United States back into recession and unleash global financial chaos.
"If not reversed within the next few days through crisis negotiations, this breakdown will be highly detrimental to the already fragile health of both the U.S. and global economies," Mohamed El-Erian, co-chief investment officer at Pacific Investment Management Co, which oversees $1.2 trillion in assets, told Reuters.
Boehner said he would begin talks with Senate leaders "in an effort to find a path forward". An aide said a deal needs to be set by Monday.
A senior White House official warned the United States now faces the "very real prospect" that its top-notch credit rating will be downgraded.
Wall Street has spent weeks betting Washington will raise the debt ceiling in time. But with dwindling options for the type of long-term deficit-reduction plan that could appease the ratings agencies, markets could become unnerved quickly.
"The longer they draw this out and closer we get to the eleventh hour, the more possibility there is that there will be a signal from the bond market in the form of yields rising as people become more and more concerned it doesn't get through," said Scott Carmack, assistant portfolio manager at Leader Capital in Portland, Oregon.More...