President Barack Obama conferred with Democratic congressional leaders at the White House Sunday night over the political stalemate that has prevented the government from raising the $14.3 trillion limit on its borrowing.
"In an effort to reach a bipartisan compromise, we are putting together a $2.7 trillion deficit reduction package that meets Republicans' two major criteria: it will include enough spending cuts to meet or exceed the amount of a debt ceiling raise through the end of 2012, and it will not include revenues," Senate Majority Leader Harry Reid released in a statement Sunday night.
The plan would give Obama the 17 percent increase in the borrowing limit and would not include tax increases. Congress is facing an Aug. 2 deadline, the day the government exhausts its borrowing authority.
"We hope Speaker Boehner will abandon his 'my way or the highway' approach, and join us in forging a bipartisan compromise along these lines," the Reid statement said.
News of Obama's meeting came as Boehner was telling GOP members in a late Sunday afternoon conference call that no accord on raising the borrowing limit had yet been reached.
Boehner told Republicans that "there is a path" to cut spending and raise the debt ceiling, but it will require his party to accept sacrifices, according to two sources who heard his message.
He told Republicans he is drafting legislation that reflects the principles of a strict spending-cut bill that failed in the Democratic-controlled Senate last week.
Republican leaders had earlier said they wanted to show progress by 4 p.m. EDT Sunday, before trading got under way in Tokyo, Shanghai and other East Asian financial markets.
Big unknowns Among the unknowns as the debt limit impasse dragged on, three seemed especially worrisome:
- How seriously do investors take the potential of a default on U.S. Treasury securities? Yields have held near historic lows, with the benchmark 10-year note trading below 3 percent, a contrast to the soaring yields one sees in a sovereign debt crisis.
- Does Boehner have the ability to persuade his rank-and-file House members — many of them absolutely opposed to raising the debt limit — to vote for a plan to avert a crisis?
- Would Obama sign a shorter-term debt limit increase, or would he stick to his insistence on a plan to carry the government through 2013?
On NBC's Meet the Press, Sen. Tom Coburn, R-Okla., a fiscal conservative who is on good terms personally with the president, said Republican leaders will offer Obama only a short-term debt limit increase.
"That's what he's going to get presented with, that's the compromise way through," Coburn said.
The Oklahoma Republican said he understands why White House officials are saying that Obama won't sign a short-term debt limit increase, "but I think they won't have any choice, and I think that's the only answer right now."
But, in a separate interview on Meet the Press, White House chief of staff Bill Daley said the debt limit "must be extended in a way that gives certainty to the economy through '13 and not some short-term gimmick where we're right back in this fix in six or eight months ...."
He said the risk of passing a debt limit that would only carry the government into mid-2012 is that investors and foreign governments would look at the United States in the middle of a presidential election year and conclude that "these people just can't get their act together."
Daley warned that the talks were moving into "difficult days," but added that when congressional leaders "need to act, when they see a crisis, I have firm belief" that they will act. All four congressional leaders, he said, "have all committed themselves that this country's debt will be repaid."
Daley said, "We are now getting to a point where I think that markets around the world will question whether the political system in Washington can come together and compromise for the greater good of the country."
When borrowing authority runs out
Treasury Secretary Tim Geithner would not say Sunday what the administration's back-up plan was if Congress did not vote to increase the borrowing limit before Aug. 2.
"We will do everything we can to mitigate the damage," he told Fox News Sunday, noting that the United States sends out 80 million checks a month to government contractors, Social Security recipients, and others.
Geithner had previously said that once the government's borrowing authority is exhausted in August, it would be required to cut roughly 40 percent of all its payments.
As of Aug. 3, the government would have only the daily cash flow from payments of taxes and fees and would be faced with deciding which bills to pay. Among the payments scheduled to be made on that day are $23 billion to more than 50 million Social Security recipients.
Geithner has said if the government paid only the interest on its debt, but failed to pay "legally required obligations to its citizens, servicemen and women and businesses," there would be a sharply negative reaction in financial markets, damaging the nation's creditworthiness.
Credit downgrade looms
Standard & Poor's said last week that "owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days."
The rating agency also said, "Despite months of negotiations, the two sides remain at odds on fundamental fiscal policy issues," which has created "an increasing risk of a substantial policy stalemate enduring beyond any near-term agreement to raise the debt ceiling."
Publicly held debt is now at its highest level than at any time in American history other than the period after World War II when the costs of the war were being paid off.
In a report last month the Congressional Budget Office said the debt "is expected to equal roughly 70 percent of the economy's annual output, or gross domestic product (GDP), at the end of this fiscal year, up from 40 percent at the end of 2008."