WASHINGTON (AFP) – Three days before a critical deadline, US President Barack Obama pressed polarized lawmakers Saturday to reach an urgent deal to avert a US debt default that could plunge the world economy into chaos.
With cash-strapped Washington facing a midnight Tuesday deadline when it runs out of cash to pay its bills, Obama said in his weekly address that "there are plenty of ways out of this mess. But there is very little time."
Obama noted that a stalemate could lead ratings agencies to downgrade the sterling US debt rating of Triple-A, causing a spike in interest rates that would throw a wrench into the gears of the already sputtering US economy.
"That would be inexcusable, and entirely self-inflicted by Washington. The power to solve this is in our hands," he said, as senators made a beat-the-clock push to hack a path to compromise through a jungle of partisan politics.
Number-two Senate Republican Jon Kyl accused Obama's Democrats of being unserious about making deep spending cuts and warned that the United States could soon face a Greece-style "debt crisis" of its own.
"With debt crises rolling across Europe, we know it is only a matter of time before people start to question whether America can sustain its huge and growing debt," he said in the weekly Republican rejoinder to Obama.
The rival appeals with the Republican-led House of Representatives due to kill a proposal from Democratic Senate Majority Leader Harry Reid, a tit-for-tat strike after the Senate beat back a House-passed Republican bill late Friday.
The Democratic-held Senate, meanwhile, was on course for a 1:00 am (0500 GMT) Sunday procedural vote on Reid's proposal to end the angry stalemate.
Behind closed doors, lawmakers tussled over the contours of a compromise expected to call for spending cuts roughly equal to Obama's request for a $2.4 debt limit increase, no tax hikes, and the creation of a special committee of lawmakers tasked with finding savings in the social safety net.
The US economy hit its $14.3 trillion debt ceiling on May 16 and has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally -- but can only do so through Tuesday.
Business and finance leaders have warned that default would send crippling aftershocks through the fragile US economy, still wrestling with stubbornly high unemployment of 9.2 percent in the wake of the 2008 global meltdown.
Absent a deal, the US government will have to cut an estimated 40 cents out of every dollar it spends, forcing grim choices between paying its debt or cutting back on programs like those that help the poor, disabled, and elderly.
In a grim warning of what may come if there is no breakthrough by Tuesday, US markets fell for a fifth straight day on Friday -- a month of gains wiped out in a week of losses due to poor US growth and the political stalemate.
The House late Friday passed Speaker John Boehner's bill to avert a default, with 22 Republicans joining all 188 Democrats who voted in opposition to the plan, while 218 Republicans backed it -- eking out the 216 votes needed.
Within two hours, the Senate had rejected it in a 59-41 vote, with all of the White House's allies voting against the plan, joined by six Republicans who rejected it as insufficiently stringent.
Reid said he hoped Republican Senate Minority Leader Mitch McConnell would now help work out a final deal.
A key sticking point was the duration of any debt limit increase: Boehner's plan set the stage for another high-stakes showdown in a few months, while Reid's approach met Obama's goal of putting off another politically fraught debt battle until after the November 2012 elections in which he seeks a second term.
Boehner's bill had sought to pair raising the debt ceiling by $900 billion with spending cuts of some $917 billion over 10 years, while requiring later debt limit increases to be tied to congressional passage of a balanced budget amendment to the US Constitution for ratification by the 50 states.
Reid, whose Democrats oppose tying the debt limit to such an amendment, has offered a blueprint that would raise the debt ceiling by $2.4 trillion while cutting spending by some $2.4 trillion over 10 years.
And he grafted onto his bill a two-week-old "backup plan" mechanism by McConnell that would effectively allow Obama to raise the debt limit by that amount in three steps with only Democratic votes.
Neel Kashkari, who served as an assistant Treasury secretary during the George W. Bush administration and managed the fallout from the 2008 collapse of investment giant Lehman Brothers, said the global economic context in September 2008 was probably worse than today, but the US economy remains vulnerable.
"These factors suggest that a US downgrade has the potential to be as bad or perhaps worse than the Lehman shock," Kashkari wrote in The Washington Post.
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