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Dublin: 10 °C Friday 24 October, 2014

US is six days away from debt default

Time is running out for an agreement on lifting America’s debt ceiling…

The White House pictured this morning.
The White House pictured this morning.
Image: Pablo Martinez Monsivais/AP/Press Association Images

SIX DAYS AWAY from a potentially calamitous government default, House Republicans appeared to be coalescing  today around a work-in-progress plan by House Speaker John Boehner to increase the U.S. borrowing limit and chop $1 trillion in federal spending.

But the White House dismissed the proposal as a waste of time, and it got a thumbs-down from Senate Democrats and tea party activists, too.

It was a telling illustration of the difficult politics along the pathway to a deal in a standoff that has put financial markets on edge. Stocks were falling sharply today.

Republican leaders worked to line up support for Boehner’s proposal, which was being retooled after nonpartisan analysts in the Congressional Budget office said it would cut spending less than he had estimated — about $850 billion over 10 years rather than $1.2 trillion. The House planned to vote on the reworked plan on Thursday, with Boehner calling it “the best opportunity we have to hold the president’s feet to the fire.”

White House spokesman Jay Carney dismissed all the focus on the Republican plan as a distraction.

“Why are we voting on measures that have no chance of becoming law?” he asked with exasperation. Carney said lawmakers should stop looking for an easy way out of the debt crisis.

“People keep looking for off-ramps,” he said. “They don’t exist.”

Boehner’s proposal caught criticism not just from Democrats but from the right as well.

Tea party activists gathered across the street from the Capitol on Wednesday and urged Boehner to reject any deal that doesn’t include steep spending cuts — even if the U.S. defaults.

Tea Party Nation, one group within the loosely affiliated movement, issued an online call for Boehner to step down. But other tea party activists said the speaker needs time to strike a good deal.

Tea Party Express strategist Sal Russo said that while Boehner was trying to “salvage some small steps to fiscal responsibility, we believe his proposals lack sufficient progress in getting America’s economic future on a better footing.”

Reid’s rival proposal would deliver budget savings of a little more than $2 trillion, a half-trillion less than promised but still more than under Boehner’s plan, budget analysts reported. The Senate leader said he’d wait to see what the House did before bringing his plan to a vote.

House Democrats, for their part, focused on finding a fallback plan should the two sides fail to raise the debt ceiling before the government runs out of borrowing authority next week.

Rep. James Clyburn, a member of the Democratic leadership, said he told fellow Democrats that Obama should veto the House GOP plan for a short-term extension of the debt ceiling and invoke the Constitution’s 14th Amendment, which says that the validity of the nation’s public debt “shall not be questioned.”

The White House has rejected resorting to this tactic, questioning its legality. But Democratic Caucus chairman John Larson said that with only days left before Treasury’s borrowing authority lapses, “we have to have a failsafe mechanism.”

Amid all the heated rhetoric, it was easy to miss the fact that the differences between the sides actually seemed to be narrowing.

Boehner’s plan represents significant movement from a bill the House passed last week, this one requiring less of the long-term spending cuts that had made Democrats balk. And Reid no longer is insisting on having tax increases, anathema to Republicans, as part of any plan to cut deficits.

Boehner needs to do more than pump up the legislation, however. He has to shore up his standing with tea party-backed conservatives demanding deeper spending cuts to accompany an almost $1 trillion increase in the government’s borrowing cap.

Unless he can wrestle the situation under control, Boehner risks losing leverage in his dealing with Obama and the Democrats who control the Senate.

Reid said Boehner’s original plan was destined to fail in the Senate and it drew a White House veto threat. But it was nevertheless framing the debate over how to reduce long-term deficits while raising the debt ceiling.

Tuesday’s CBO analysis said the GOP measure would cut the deficit by about $850 billion over 10 years, not the $1.2 trillion originally promised. Even more embarrassing was a CBO finding that the measure, which would provide a $900 billion increase in the nation’s borrowing cap, would generate just a $1 billion deficit cut over the coming year.

Boehner’s plan would couple budget savings gleaned from 10 years of curbs on agency budgets with a two-track plan for increasing the government’s borrowing cap by up to $2.7 trillion. The first increase of $900 billion would take effect immediately; the second could be awarded only after the recommendations of a special bipartisan congressional panel were enacted into law.

The White House says Boehner’s measure would reopen the delicate and crucial debt discussions to unending political pressure during next year’s campaigns and risk more uncertainty in the markets.

Need help visualising the debt of the US? Check how it literally stacks up in this Huffington Post graphic>

Read more: Obama walks out of budget talks with Republicans>

- AP

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