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Republicans, Democrats still stuck on debt plan

07-25-2011 09:41 BJT

WASHINGTON - Democrats and Republicans remained deadlocked in crisis talks Sunday to agree on painful cuts in US government spending, leaving in question an extension of the country's borrowing limit needed by August 2 to avoid a catastrophic default.

Late Sunday afternoon, President Barack Obama called Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, the top Democrat in the lower chamber of Congress, to the White House for talks on a way forward.

On the other side, House Speaker John Boehner in a conference call summoned his Republican rank-and-file to get behind a "new measure" that could clear both houses of Congress.

"It won't be 'Cut, Cap and Balance' as we passed it," he said, referring to a House measure - killed in the Democratic-controlled Senate on Friday - that would have required spending cuts of an estimated $6 trillion as well as congressional approval of a constitutional balanced budget amendment to send to the states for ratification.

The new approach is "going to require some of you to make some sacrifices," he said, according to a person familiar with his remarks.

Boehner had said earlier that he was working on a two-part plan to raise the debt limit. Obama and the Democrats insist that any plan must raise the borrowing limit enough to keep the issue off the agenda until after the 2012 election.

Obama's chief of staff, Bill Daley, answered emphatically "Yes," when he was asked on a Sunday television news program if the president would still refuse to sign a short-term debt limit extension.

Congressional and Obama administration officials had hoped to announce a framework for an agreement by 4 pm EDT (2000 GMT) Sunday, before the Asian financial markets open.

But that time passed with no deal announced Sunday afternoon. Republican congressional leaders called the rank-and-file back to Washington earlier than expected for the new work week and set a mid-afternoon Monday meeting to go over the debt-limit legislation.

The stakes are high. Major global credit ratings agencies have threatened to downgrade the US government's triple-A credit rating unless there are assurances that the United States will not go into default for the first time in its history. A default would mean that the US government could not pay all its bills starting next month, including interest and principal on Treasury bonds, Social Security checks to retirees, and payments to government contractors.

That would raise the cost of US government borrowing. Americans seeking home mortgage or car loans would see interest rates climb as would people with outstanding credit card balances. Obama says that effectively would amount to a tax increase on Americans. Many economists think default could push the US economy back into recession or worse while causing chaos in the global economy.

In the face of those fears, Treasury Secretary Timothy Geithner had said optimistically he thought there would be a deal on the long-running debt battle and predicted they will avert a historic federal default.

"It's unthinkable that this country will not meet its obligations on time. It's just unthinkable. We never do that. It's not going to happen," Geithner said in a TV interview Sunday.

The urgency of finding a suitable compromise grew after talks broke down Friday. Obama warned that a deal had to be in place by the end of Sunday to prevent global and US stock markets from steep declines when they open on Monday.

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