Boehner fears market drop if debt talks fail

Boehner told high-ranking Republican politicians in a conference call that he hoped for a deal within 24 hours [AFP]

US House Republican party leader John Boehner says he fears for the domestic economy if an agreement is not reach soon with Democrats on ending the country’s debt crisis.

Democrats and Republican legislators were deep in crisis talks on painful cuts in government spending on Sunday as an August 2 deadline to avert a US debt default looms.

Boehner has said he is working with his members on a two-part plan to raise the debt limit, adding that he wanted the two sides to reach a deal before Asian markets opened early on Monday.

President Barack Obama and top US legislators held day-long crisis talks on Saturday but failed to find a breakthrough.

“Over this weekend, Congress will forge a responsible path forward,”  Boehner in a statement.

He told high-ranking Republican politicians in a conference call that he hoped for a deal within 24 hours to soothe investors, notably in Asia, a participant on the call told the AFP news agency.

“We are working, and I’m confident there will be resolution. There has to be,” Boehner told the group, promising “real cuts” in spending that would help put cash-strapped Washington on a “sustainable” course.

The speaker said the hard-fought negotiations centred on a two-step process to cut more than $3 trillion in spending over ten years as part of a deal to raise the $14.3 trillion US debt limit by an August 2 deadline, the participant added.

Partisan divisions

Boehner and Obama have been at odds all weekend, with the president saying Boehner had rejected an “extraordinarily fair” deal when he abandoned their meeting on Friday.

The debt-deal roadblock reflects long-held partisan beliefs in the capital.

Republicans want deep cuts to borrowing and spending, including entitlement programmes that pay for health care for the poor and elderly.

The party also opposes higher taxes to generate more revenue, saying they kill job-creating businesses.

Democrats oppose cutting entitlement programs, want more revenue from taxes and want to raise the US debt ceiling beyond $14.3 trillion in the short term to pay the government’s bills.

Washington hit its debt ceiling on May 16 but has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to pay its bills and continue operating up to August.

Finance and business leaders have warned that a failure to raise the US debt ceiling by then would send shockwaves through the world economy, while Obama has predicted a default would trigger economic “Armageddon”.

Two-stage process

Democrats have previously rejected the Republicans’ plan for a two-stage process to raise the debt limit.

Under the plan, the debt ceiling would be raised through 2011 in exchange for around $1tn in spending cuts.

Congress would then have to vote again to raise the ceiling through 2012, after a special commission is set up to research a long-term solution.

Obama has called for a single increase to last through the 2012 election, when he seeks a second term in a contest likely to be defined by his handling of the ailing economy and shaped by Republican anger at government spending.

Senate Majority Leader Harry Reid said that a “short-term agreement” would send a “message of uncertainty” to the world.

In response to Reid’s broadside, Boehner spokesman Michael Steel declared “a two-step plan is inevitable” and said Republicans “believe that defaulting on the full faith and credit of the United States is not an option”.

Republicans have called for spending cuts over 10 years at least equal to the dollar amount of any debt limit increase while vowing to reject Obama’s call for raising taxes on the rich and wealthy corporations.

Democrats have pledged to defend social safety net programmes funded by the government, which the president has targeted for cuts and said the most well-off Americans must shoulder a greater burden.

Talks futile

Obama on Friday said although talks with Republican leaders toward a debt deal had broken down, both sides were only about $10bn apart on spending cuts.

In a letter to congressional colleagues following the talks on Friday, Boehner said talks with the president had become futile, citing Obama’s demand to raise taxes.

“The president is emphatic that taxes have to be raised,” Boehner wrote. “As a former small businessman, I know taxes destroy jobs.”

The largest US creditor, China, has twice warned that the US must protect investor interests, as ratings agencies Moody’s and Standard & Poor’s have said the sterling Triple-A US debt rating was in danger of a downgrade.