WASHINGTON (Reuters) – White House officials and Republican leaders scrambled on Sunday to reassure global markets the United States would avert a debt default but the two sides gave no sign they were moving closer to a deal.
Treasury Secretary Timothy Geithner said it was unthinkable that the country would default on its obligations and he was confident a deal would get done.
"What the leaders know is that they need to agree on something together that will pass the House (of Representatives), pass the Senate that the president can accept," Geithner told CNN's "State of the Union" program.
But the path forward was murky.
With Asian markets set to open in a few hours, Democrats and Republicans traded blame for the inability to strike a deal to lift the $14.3 trillion limit on U.S. borrowing ahead of an August 2 deadline. Republican leaders want to show progress by 4 p.m. EDT on Sunday, before trading gets underway in Asia, and have legislation to unveil on Monday.
Financial markets are growing more edgy and U.S. 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.
Global investors are still reeling from the euro zone crisis that was contained only a few days ago with the unveiling of a fresh rescue package for Greece.
Republican House of Representatives Speaker John Boehner told "Fox News Sunday" he would unveil a bipartisan deal to raise the debt ceiling.
"The preferable path would be a bipartisan plan that involves all the leaders, but it is too early to decide whether that's possible," Boehner said. "If that's not possible, I and my Republican colleagues in the House are prepared to move on our own."
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 have whipsawed for weeks, finally hitting a brick wall over taxes, one of the most ideologically divisive issues in U.S. politics.
'THEIR WAY OR THE HIGHWAY'
White House chief of staff Bill Daley accused House Republicans of intransigence, telling CBS' "Face the Nation" they were insisting that any deal has to be "their way or the highway."
Administration officials also said President Barack Obama would not accept a two-tiered proposal offered by Boehner that would lift the debt ceiling through the end of 2011 and then require another vote.
Daley said it was critical Congress approve a new debt ceiling that gets the country into 2013, past the November 2012 presidential election.
On Fox, Boehner said raising the debt ceiling and implementing major reforms would have to be done in two stages. "There is going to be a two-stage process. It is not physically possible to do all of this in one step."
Administration officials said a far-reaching "grand bargain" that would combine a debt-limit increase with a 10-year plan to reduce the deficit by $4 trillion was still a possibility, despite Boehner's decision on Friday to walk away from talks with the White House on such a plan.
Boehner said his last offer to the White House on the larger deal was still on the table. That offer included some $800 billion in new tax revenue and massive spending cuts.
To pass any deal that includes more tax revenue, Boehner must overcome staunch resistance from Tea Party movement conservatives in his own party, who adamantly oppose any steps to raise taxes, fiercely defending tax cuts for the rich enacted during the administration of George W. Bush.
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 and the president fail to tackle long-term deficit reduction.
Macroeconomic Advisers, a consultancy, said a failure to lift the debt ceiling and a month-long delay in agreeing on a modest deficit-reduction plan could push the unemployment rate to 9.6 percent by the end of the year, up from 9.2 percent in June.
"It seems the height of policy folly for elected officials, intent on a game of budgetary chicken, to chance this downside risk during an economic recovery that was sub-par to begin with and lately seems to have faltered further," Macroeconomic Advisers said in a blog on Friday. "Sometimes in a game of chicken, people get injured -- seriously."
(Additional reporting by Dave Clarke, Donna Smith, Richard Cowan, Andy Sullivan, Laura MacInnis and Alister Bull; Editing by Will Dunham and Todd Eastham)
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