The White House and its divided Republican foes clashed but failed to break an impasse that could see the world’s richest nation default on its debt, with potentially ruinous global results.
With a week to go before the US Treasury says it will run out of cash to pay its bills, the dollar slid against key currencies and US stocks fell as markets measured the risk of an August 2 deadline passing without a breakthrough.
Top Senate Democrats and Republicans cautiously urged compromise even as Republican House Speaker John Boehner struggled to keep his conservative troops in line behind his plan for raising the $14.3 trillion US debt limit.
“We’re willing to listen to all the good ideas. I’ll even listen to some bad ideas if it’ll help move down the road,” Democratic Senate Majority Leader Harry Reid said, even as he declared Boehner’s plan “dead on arrival”.
“We need to re-engage with the President,” said Republican Senate Minority Leader Mitch McConnell, who days earlier had washed his hands of negotiations with Obama and placed his hopes for an ambitious compromise in the Congress.
McConnell noted that Republicans only control half of Congress, and, in a message sure to rile “Tea Party” hardliners, told reporters: “I’m prepared to accept something less than perfect, because perfect is not achievable.”
The White House came out guns blazing at Boehner’s plan, warning that Obama’s advisors would push him to veto it in the unlikely event the measure survived the Democratic-led Senate.
Boehner insisted his plan, which Obama opposes because it would force another debt-ceiling showdown during the 2012 presidential election campaign, was the only “reasonable approach”, even as he tamped down a conservative revolt.
But the speaker suffered a setback late in the day on Tuesday when the Congressional Budget Office, the non-partisan last word in polarised Washington’s spending battles, said his bill would not cut as much spending as advertised.
Boehner, whose measure fell short of the $1.2 trillion in cuts over 10 years he wanted as the price for raising the debt limit $1 trillion, said through spokesman Michael Steel he was “looking at options to re-write the legislation.”
It was unclear how that would affect a vote on the bill, now postponed until today, amid concerns conservatives unsatisfied with the depth of its spending cuts might deny it even a majority of Republicans.
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.
If there is no deal, the United States, still recovering from the 2008 recession with unemployment hovering around 9.2 per cent, could be faced with tough choices, either a debt default or reneging on obligations like government benefits for the poorest, most vulnerable Americans.
Obama has agreed in principle to deep spending cuts, including savings from social safety net programs dear to his Democrats, but Republicans egged on by the Tea Party have refused his call for tax revenue increases targeting the rich and wealthy corporations.
Reid’s plan would lift the debt ceiling by $2.7 trillion, lasting to 2013, tied to the same amount of spending cuts over 10 years, and does not include tax increases.
Christine Lagarde, the new head of the International Monetary Fund, said a US default would bring “serious” pain to the global economy and warned: “The clock is irremediably ticking, and people really have to find a solution”.
And Brazilian Finance Minister Guido Mantega, whose country’s economy is booming, said the United States needed to come “to its senses,” saying he believed there would be a solution “but I am worried by the turn of events”.
Meanwhile, the dollar steadied against the euro yesterday as investors paused for breath after the greenback had sunk to a three-week low point against the single currency on US debt strains.
In London deals, the European single currency stood at $1.4495 after earlier striking $1.4536, the highest level since July 5. The euro had traded at $1.4509 late in New York on Tuesday.
The dollar yesterday hit a four-month low versus the Japanese currency, at 77.58 yen. It later stood at 77.69 yen compared with 77.94 yen late on Tuesday.
“The dollar seems to be holding up just about okay... but has been subject to quite a bit of weakness in the past few days,” said Simon Denham of trading group Capital Spreads.
In a glimmer of hope, some analysts said that strong tax receipts meant the United States could have up to two extra weeks of cushion after August 2 before it could be forced to default.