White House announces deal to raise the US borrowing limit just two days before August 2 deadline.
|Speaker of the House John Boehner speaks during a news conference on Capitol Hill in Washington on Friday [Reuters]|
US Republican leaders struggled on Friday to rescue their budget deficit-cutting plan after their conservative wing mounted a rebellion that heaped uncertainty on efforts to avert a catastrophic debt default.
House of Representatives Speaker John Boehner’s last-minute inclusion of stiffer language regarding a balanced budget amendment may have sealed a rift in the Republican Party that had been hampering efforts to pass his bill.
But even if Boehner’s proposal passes the House in a vote scheduled for late on Friday, it may advance no further.
Barack Obama, the US president, called for compromise during a press conference earlier on Friday but said the Boehner plan “does not solve the problem and has no chance of becoming law”.
In a stern warning to leaders on both sides, Obama cautioned that a default would result in much higher interest payments on the country’s debts.
“We could lose our country’s ‘AAA’ credit rating … because we didn’t have a ‘AAA’ political system to match,” Obama said.
“The power to solve this is in our hands,” he said, suggesting that citizens could encourage representatives to finalise an agreement if they “write emails, make phone calls, tweet”.
Obama pledged to work all weekend long and said, “The time to put party first is over.”
The president’s job approval rating slumped to a personal low of 40 per cent in a public opinion survey out
on Friday, a possible reflection of the public ire over the debt gridlock.
Economists warn that a default could push the already fragile economy back into recession.
Fears about America’s economic health grew on Friday after the government reported that US gross domestic product grew by just 1.3 per cent rate in the second quarter, which was weaker than expected.
Up for vote
One House member who had resisted Boehner’s entreaties said early on Friday that there has been progress on the measure and predicted it would pass later in the day.
“I think we made progress last night,” Representative Trey Gowdy, who is backed by the Tea Party movement, told the CNN news channel. “What we’ll do today, and I predict it will be done today, is for the third time send a plan that raises the debt ceiling in a responsible way.”
Obama says that unless Democrats and Republicans strike a deal, the government will start running out of money to pay all its bills on August 2, a prospect that is increasingly unnerving investors around the world.
With only four days left, the treasury department could soon unveil an emergency plan explaining how the government would function and pay its obligations if Congress does not agree to raise its borrowing limit beyond $14.3tn.
Al Jazeera’s Rosiland Jordan, reporting from Washington DC, said that failure to reach a deal will “present some very difficult questions about who is going to get paid”, suggesting the US military and federal agencies could have trouble paying their bills.
Jay Carney, a White House spokesman, said the administration did not yet plan to provide the public with details on how the government will prioritize payments.
Administration officials had said on Thursday that they would discuss the government’s contingency plans in the next few days.
Carney said the administration still planned to lay out its contingency plans, but it would wait until closer to next Tuesday’s deadline.
Private economists believe the government would pay bond holders first if the government is unable to borrow new debt.
Interest rates up, dollar down
Interest rates on the first treasury bills maturing after the US government has warned it will run out of money next Tuesday, rose to their highest level since they were issued.
And the dollar fell to a four-month low against the yen.
Our correspondent also said the lack of an accord could “have a real economic impact, not just on the US economy, but on economies around the world”.
In a sign of growing international alarm over the American impasse, China’s state-run news agency Xinhua sharply criticized US politicians, saying the world’s largest economy has been “kidnapped” by “dangerously irresponsible” politics.
As the largest foreign creditor to the US, Beijing has repeatedly urged Washington to protect its dollar investments, which are estimated to account for about 70 per cent of its $3.2tn in foreign exchange reserves.
But lawmakers in Washington were in a standoff as conservative Republicans demand an end to what they say is out-of-control government spending and Democrats seek to protect spending on social programs.
Boehner’s plan, which would cut spending by about $900bn and raise the debt ceiling for a few months, is sure to be rejected by the Democratic-controlled Senate, but could factor into an eventual compromise.
Top Senate Democrat Harry Reid aims to raise the debt ceiling by enough to push the crisis beyond the November 2012 presidential election.
Reid indicated he may soon advance his own bill – which cuts spending by $2.2tn over 10 years – in the Senate, rather than use Boehner’s proposal as the basis for a compromise.