Last Updated: Sun Jul 24, 2011 10:35 am (KSA) 07:35 am (GMT)

US Congress scrambles for debt deal in emergency overnight talks, eyes on Asian markets

US Congress will struggle on Sunday to hammer out a deficit deal and assure investors before Asian markets open. (File photo)
US Congress will struggle on Sunday to hammer out a deficit deal and assure investors before Asian markets open. (File photo)

The United States Congress will struggle on Sunday to hammer out a deficit deal and assure investors before Asian markets open that America can avert a catastrophic default and hold onto its prized credit rating.

Congressional staff planned to work through the night after President Barack Obama told lawmakers in an emergency White House meeting to find a way to lift the $14.3 trillion limit on US borrowing that would allow the world’s largest economy to pay its bills past next year’s November election.

But new acrimony flared late Saturday on Capitol Hill over that timetable, adding to the difficulties facing negotiators who have been at impasse for weeks over the role of taxes in any deficit reduction plan.

An aide to Republican leaders said lawmakers were working on a plan for $3 trillion to $4 trillion in savings over ten years, but another high-ranking Republican official said no numbers had been set.

It was not clear if this package contained additional tax revenue alongside cuts in government spending, as President Obama has demanded.

Republican leaders want “to show progress” by 4 p.m. EDT (2000 GMT) on Sunday, before financial market trading gets under way in Asia, and have legislation to unveil Monday.

“Congressional leaders are working in good faith with the goal of having something to present to their members on Monday,” a second Republican aide said.

The United States will run out of funds to service its debt on August 2 if Congress does not approve additional borrowing. Republicans have insisted the White House agree to deep spending cuts for long-term deficit reduction before they approve any increase in America’s debt burden.

Negotiations toward that agreement have whipsawed for weeks, finally hitting a brick wall over taxes, one of the most ideologically divisive issues in US politics.

A Democratic aide said Republicans were pushing a package that raised the debt limit and cut spending in two steps, while Democrats want a single deal to cover borrowing through 2012.

Michael Steel, a spokesman for House of Representatives Speaker John Boehner, the top Republican in Congress, said that “a two-step process is inevitable.”

Disagreement on that issue prompted Senate Democratic leader Harry Reid to express new disappointment with the process, saying Republican “intransigence” was “pushing us to the brink of a default.”

Treasury Secretary Timothy Geithner and White House chief of staff Bill Daley were scheduled to speak on several Sunday television news shows to hammer home President Obama’s argument that a deal must include more revenue from taxes.

The frantic drive toward a deal over the weekend began after closed-door talks between President Obama and Mr. Boehner collapsed on Friday.

Those talks broke down as Republican leaders balked at a White House plan to raise revenues by $3.5 trillion to $4 trillion over ten years, complaining it contained $400 billion more in additional tax revenue than they could stomach.

President Obama, angry at the collapse of negotiations, chided Republicans and warned time had run out to lift the debt limit. The White House kept up the pressure on Saturday, urging Congress not to play “reckless political games” and warning against stop-gap measures that fail to tackle the deficit.

Mr. Boehner must overcome stout resistance from Tea Party movement conservatives in his own party, who adamantly oppose any steps to raise tax revenue.

Rating agencies say they will cut America’s Triple-A credit rating if the United States fails to meet debt payments, likely triggering global market turmoil. Even if the United States does not default, its rating will be under pressure if Congress fails to tackle long-term deficit reduction.

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.

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