Congress entered the final weekend before a threatened U.S. default deadlocked over legislation to raise the debt limit as President Barack Obama appealed to party leaders to reach a compromise.
The Senate yesterday rejected a plan the Republican- controlled House passed hours earlier with no Democratic support. It would have required congressional approval of a constitutional amendment to balance the budget and forced another debt-limit vote by lawmakers in about six months to continue the nation’s borrowing authority beyond early 2012.
Congressional leaders “need to start working together immediately to reach a compromise that avoids default and lays the basis for balanced deficit reduction,” White House Press Secretary Jay Carney said in a statement after the two votes.
Senate Majority Leader Harry Reid, a Nevada Democrat, who offered modifications to a Democratic plan that he said are designed to attract Republican support, accused Republican leaders of rebuffing his efforts to negotiate.
Reid said when he attempted to engage Senate Republican leader Mitch McConnell of Kentucky in talks, “we had no one to negotiate with.”
Missing Republicans
“We’re missing Republicans,” said Senator Chuck Schumer, a New York Democrat, though with just days left to a possible Aug. 2 default, “that could change.”
House Speaker John Boehner, an Ohio Republican, speaking before the House vote, said his party has “done everything we can to find a common-sense solution.”
Shortly after the Senate rejected Boehner’s plan, the House scheduled a preemptive vote for today on Reid’s proposal -- planning to defeat it even before the Senate takes it up. The House convenes at noon with voting planned after 1 p.m.
Financial markets were restrained in reacting to the Washington impasse yesterday. Treasuries rallied, sending yields on 10-year notes to the lowest level since November. The yield on 10-year Treasury note yields declined 15 basis points to 2.79 percent in New York. Stocks fell as economic growth trailed forecasts. The Standard & Poor’s 500 Index slipped 0.7 percent and tumbled 3.9 percent this week for its worst slide in a year.
Lawmakers are working through the weekend. Senate procedures would allow an initial vote on Reid’s plan at about 1 a.m. tomorrow. A Senate vote then could be held at about 7 a.m. on Aug. 1, allowing the measure to return to the House before the Aug. 2 deadline.
Moving Toward McConnell
The modifications Reid proposed in his plan yesterday bring it closer to one McConnell proposed earlier this month.
Borrowing authority would be provided in two separate $1.2 trillion installments, one immediately and one in several months as the nation again nears its borrowing limit.
All but the first $416 billion could be blocked through a joint resolution of Congress, though opponents would have to muster supermajorities in both chambers to override a veto.
The new plan would yield debt savings of $2.2 trillion -- about the same as the total borrowing authority extended -- and call on a 12-member bipartisan congressional committee to draft legislation to lower the deficit to 3 percent or less of gross domestic product.
Senator Scott Brown, a Massachusetts Republican, said his staff has been working with Reid’s to put “more teeth” in the joint committee plan.
‘On the Brink’
Senator Lisa Murkowski, an Alaska Republican, said “absolutist” lawmakers aligned with the Tea Party have put the U.S. “on the brink.”
“I am really worried about where we are standing, and I think part of that has come about because you have individuals that say, ‘It is my way or the highway,’” Murkowski said in an interview at Bloomberg’s Washington office. “That is not how you govern.”
Obama may invite congressional leaders back to the White House for more talks, according to a Democratic official. No decision has been made about further discussions between Obama and Democratic and Republican congressional leaders, said the official, who wasn’t authorized to speak publicly about the administration’s strategy.
While Obama and Vice President Joe Biden have been in contact with lawmakers, as of late yesterday the president hadn’t spoken with Boehner for days, the official said.
Losing AAA Rating
“If we don’t come to an agreement, we could lose our country’s AAA credit rating, not because we didn’t have the capacity to pay our bills -- we do -- but because we didn’t have a AAA political system to match our AAA credit rating,” Obama said earlier yesterday at the White House.
Obama said with Democrats and Republicans in “rough agreement” on plans to raise the nation’s debt limit within days of a threatened default, the time for compromise is “now.” The president and the Republicans used their weekly addresses on the Internet and radio to continue the debate.
The House-passed plan was “unacceptable” and would mean another debt-ceiling extension in less than a year, Obama said today. “There are plenty of ways out of this mess,” he said, noting the parties aren’t that far apart on spending or how to tackle entitlements and the tax code. “But there is very little time.”
Jon Kyl of Arizona, the second-ranking Republican in the Senate, said in the Republican address that Obama and the Democrats are “too committed to the European style of big government.”
Retirement Savings
Still, he said, the consequences of missing the Aug. 2 deadline could be “severe,” with markets dropping in value and hurting Americans’ retirement savings. “Republicans believe we must solve our debt crisis, and we believe we can solve it if Democrats will work with us,” he said. “If we don’t do something about our spending problem now, the scenes we’ve seen playing out all across Europe could happen in America.”
The Treasury Department has said the U.S. will breach its borrowing limit and run out of options for avoiding default if the $14.3 trillion debt ceiling isn’t raised by Aug. 2.
Senate Budget Committee Chairman Kent Conrad expressed confidence that lawmakers will head off a default.
“Work expands to fill the time. We certainly know that’s true here,” Conrad, a North Dakota Democrat, said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend. “Leaders on both sides are sufficiently responsible that they understand if there were a default, it would be a disaster for this country.”
A Potential Deal
Behind the scenes, Democratic officials said, talks on a potential deal centered on how to force future deficit-cutting by Congress, by setting up consequences -- such as automatic spending cuts or tax increases, or some combination of the two - - if the savings aren’t achieved.
“If we need to put in place some kind of enforcement mechanism to hold us all accountable for making these reforms, I’ll support that, too, if it’s done in a smart and balanced way,” Obama said.
The Treasury is preparing contingency plans to pay the government’s obligations should Congress fail to raise the borrowing limit in time. Carney said Treasury officials may reveal the plans this weekend.
Federal Reserve Bank of St. Louis President James Bullard said a resolution of the debt-ceiling impasse may remove a key unknown that has restrained economic growth in the U.S. “Once this last uncertainty is resolved, the path to faster growth may be open,” Bullard said, according to prepared remarks for a speech yesterday in Jackson Hole, Wyoming.
Short-Term Fix
Carney reiterated that Obama would accept a short-term debt ceiling extension of a few days only if needed to finish work on legislation lifting the limit for a longer period.
House Republican leaders revised their bill after failing to win enough support for a vote the previous night. It would allow a debt-limit increase now and require Congress to work out a second increase agreement within months. The second debt-limit increase would occur only if a balanced-budget constitutional amendment is passed by Congress and sent to the states.
Representative Mo Brooks, an Alabama Republican, said the decision to include the balanced-budget amendment turned 10 to 20 Republican votes in favor of the measure.
The House approved the measure 218-210, with no Democrats voting in favor. In the Senate, the measure was tabled 59-41, with all 51 Democrats joined by two independents and six Republicans in opposition to the plan.
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