Obama presses on debt deal: "It's decision time"

Debt impasse continues, Obama sets weekend deadline

AP President Barack Obama sits with Republican and Democratic leaders regarding the debt ceiling in the Cabinet Room of the White House in Washington, on Wednesday.

President Barack Obama is demanding that budget negotiators find common ground by week’s end, declaring “enough is enough,” in an effort to stave off a first-ever default on U.S. debt.

The continuing impasse was unsettling Wall Street, which up to now had performed as if an increase in the debt ceiling was not in doubt. And the looming August 2 cut-off for action was creating new tensions between the President and Republican leaders.

Mr. Obama and the top eight House and Senate leaders met for the fourth time in as many days Wednesday, and, despite the tense ending, agreed to meet again on Thursday.

“No one can tell me with certainty that a U.S. default wouldn’t cause catastrophe and wouldn’t severely damage the U.S. or global economy,” Jamie Dimon, chief executive of JPMorgan Chase, a major bank, told reporters on Thursday. “And it would be irresponsible to take that chance.”

Moody’s Investors Service said on Wednesday it will review the government’s credit rating, noting there is a small but rising risk that the government will default on its debt. If Moody’s were to lower the ratings, the consequences would ripple through the economy, pushing up rates for mortgages, car loans and other debts. A Chinese rating agency, Dagong Global Credit Rating, also warned of a possible downgrade.

The United States hit its current $14.3 trillion debt ceiling in May and the Obama administration says the government will default on its obligations if the debt limit is not increased by August 2. For a new debt ceiling to last to the end of 2012 would require raising it by about $2.4 trillion.

Republicans, in control of the House of Representatives in part because of the support of conservative activists, say they will not vote to raise the limit if Mr. Obama doesn’t agree to at least an equal amount of deficit reductions over 10 years.

Federal Reserve chairman Ben Bernanke, addressing lawmakers, warned on Wednesday that not increasing the nation’s debt ceiling and allowing the nation default on its debt would send “shock waves through the entire financial system.”

And in the cauldron of the White House Cabinet Room, Mr. Obama and top legislators bargained for nearly two hours on Wednesday on spending cuts. Mr. Obama curtly ended the session when House Majority Leader Eric Cantor, urged Mr. Obama to accept a short, months-long increase in debt instead of one that would last through next year’s Presidential election.

“Enough is enough. ... I’ll see you all tomorrow,” Mr. Obama said, rising from the negotiating table and leaving the room, according to several officials familiar with the session.

Mr. Cantor, speaking to reporters after the meeting broke up, said the White House had been lowering the amount of spending cuts it would put on the table, offering less than $1.4 trillion over 10 years, mostly in domestic and defence spending outside of the major social programs providing pension and medical care to the elderly and poor.

The White House argued that the total was closer to $1.7 trillion over 10 years when counting about $240 billion in reduced interest payments from the lowered debt.

Earlier, in comments to a small group of reporters before the White House session, House Speaker John Boehner complained that negotiating with the White House “the last couple months has been like dealing with Jell-O.”

Democratic officials have portrayed the White House as the more flexible party in the negotiations, willing to cut cherished social programmes, provided Republicans agree to some increases in revenue. Thursday’s meeting was to focus on spending cuts in the two health care programs and on new tax revenue.

With talks reaching a critical stage without real breakthroughs, some Republican and Democratic lawmakers were looking at a plan proposed by Senate Republican leader Mitch McConnell that would give Obama new powers to overcome Republican opposition to raise the debt ceiling.Read more...