United States President Barack Obama and top congressional lawmakers on Saturday attempted to salvage a deal to stave off a catastrophic debt default after a collapse in deficit talks left both sides angry and frustrated.
President Obama, a Democrat, called House of Representatives Speaker John Boehner, a Republican, and other congressional leaders to a meeting at 11 a.m. EDT (1500 GMT) at the White House on how the debt ceiling can be raised by August 2.
“They are going to have to explain to me how it is that we are going to avoid default,” a visibly angry President Obama said on Friday after Mr. Boehner, the top Republican in Washington, informed the President he was breaking off talks.
A senior Senate aide, speaking before the White House meeting, said the goal will be to work out a deal this weekend and have legislation ready to introduce on Monday.
With the Treasury set to run out of money to pay all of its bills on August 2, President Obama feared the window may have closed for a “grand bargain” of spending cuts and tax increases in exchange for Congress raising the $14.3 trillion debt ceiling.
The battle in Washington is over spending cuts and taxes. President Obama says he has agreed to deep spending cuts in social programs that make his own Democrats uneasy but that Republicans must allow some taxes to rise, a prospect they have rejected.
Summoned to the White House were Mr. Boehner, Senate Republican leader Mitch McConnell, Senate Democratic leader Harry Reid and Nancy Pelosi, the top Democrat in the House.
Mr. Boehner planned to reiterate to President Obama that “we must have cuts greater than the debt limit increase,” a Mr. Boehner aide said.
“We will be working throughout the weekend with leaders in the House and Senate to find a serious solution,” the aide said.
Financial markets are growing more edgy and US banks and businesses are making contingency plans for the possibility of a debt default that would drive up interest rates, sink the dollar and ripple through economies around the world.
Credit rating agencies want spending restraints for the United States to keep its prized AAA rating that makes US Treasuries the solid foundation for global investors and lowers borrowing costs for state governments, businesses, homeowners and consumers.
“We have now run out of time,” President Obama said on Friday after talks collapsed on a deficit reduction package worth more than $3 trillion over 10 years.
Mr. Boehner said on Friday he was confident the debt ceiling would be raised next week. But he will have to overcome resistance from Tea Party movement conservatives in his own party and could run into problems for having signaled a willingness to give ground on revenue increases in closed-door talks at the White House.
Both Republicans and Democrats chafed at the compromises a far-reaching deal would require before the presidential and congressional elections in November 2012, with each side accusing the other of not doing enough and demanding too much.
Mr. Boehner said talks collapsed because the White House insisted on raising taxes while refusing to get serious about cutting spending and overhauling retirement and healthcare programs. Democrats say tax loopholes and Bush-era tax cuts for the wealthy must end as part of a US fiscal rehabilitation.
A major barrier was how much revenue would be raised through tax reform - with President Obama wanting $1.2 trillion over 10 years and Mr. Boehner putting $800 billion on the table.
“If not reversed within the next few days through crisis negotiations, this breakdown will be highly detrimental to the already fragile health of both the US and global economies,” said Mohamed El Erian, co-chief investment officer at Pimco, the world’s top bond fund manager.
Before the meeting, Mr. Boehner’s aide also said President Obama was rejecting suggestions for a short-term debt ceiling increase because taking the issue up again before 2012 presidential and congressional elections could hurt President Obama’s re-election prospects.
“It would be terribly unfortunate if the President was willing to veto a debt limit increase simply because its timing would not be ideal for his re-election campaign,” the aide, Michael Steel, said.
President Obama has said raising the debt ceiling again would be even more difficult in the politically-charged atmosphere before an election.