Grand Bargain Returns to U.S. Debt Talks as Negotiators Open Paths to Deal

Amid debt talks, Obama calls for stimulus

President Barack Obama called on Wednesday for new job-creation measures that are likely to further complicate talks with Republicans to bring the country's spiraling debt under control.
Obama's call came on a day when the International Monetary Fund and the US Treasury Department urged Washington to reach a deal soon. His push for new construction loans and an extension of a payroll tax cut could further alienate Republicans already incensed by Democratic demands for new tax revenue.
With the country still struggling to emerge from the deepest recession since the 1930s, Obama said Congress needs to take steps to bring down the 9.1% unemployment rate even as it weighs medium-term austerity measures.
"There are more steps that we can take right now that wouldhelp businesses create jobs here in America," he said in a White House news conference.
Those measures likely would add hundreds of billions of dollars to budget deficits at a time when the White House and lawmakers are trying to narrow them by more than USD 1 trillion. Congressional Republicans say they have no place in the talks.
"In the middle of a debt crisis, they want to borrow and spend more money as a solution to the problem. This isn't a negotiation, this is a parody," Senate Republican Leader Mitch McConnell said earlier on the chamber's floor.
Since deficit-reduction talks collapsed last week, Republicans and Democrats have made no progress on a deal to permit Congress to extend the government's borrowing authority.
Treasury Secretary Timothy Geithner said he would not be able to stave off default if Congress does not reach a deal to raise the USD 14.3 trillion debt ceiling by August 2.
The International Monetary Fund also said failure to reach a deal soon could deliver a "severe shock" to a still-fragile recovery and global markets.
Financial markets have so far shown little concern, but credit-rating agencies have warned they could reassess their outlook on US debt if a deal is not in the works by mid-July. Congress probably will need weeks to debate and pass the deal once it is reached, and Obama warned that lawmakers may have to stay in session until it is done.
Markets did not react as the president used his first formal news conference since March to forcefully press the Democratic case.
"Obama didn't really say too much that we hadn't already heard," said Thomas Simons, money market economist at Jefferies & Co. in New York.
The Bipartisan Policy Center, a centrist think tank, said it would be technically impossible for Treasury to prioritize its payments, and Obama also cast cold water on the idea.
"Are we really going to start paying interest to Chinese who hold Treasuries and we're not going to pay folks their Social Security checks or we're not going to pay veterans for their disability checks?" he said.
Geithner said investors would still shun US debt after the August deadline even if Treasury made debt payments its top priority -- an approach backed by many Republicans.
The United States brings in 60 cents for every dollar it spends, so there would be funds available for top priorities.
But failure to raise the debt ceiling by August 2 would impose an immediate 44 percent spending cut on US obligations, according to the Bipartisan Policy Center, a centrist think tank.
"There is no credible budget plan under which a debt limit increase can be avoided," he wrote in a letter to Republicans.
Negotiators had identified between USD 1 trillion and USD 2 trillion in possible spending cuts before talks stalled last week. Republicans say negotiations will not advance unless Democrats drop their proposal to add about USD 400 billion in new revenue by ending tax breaks that benefit wealthy people and some businesses.Read more....