The White House and its divided Republican foes have failed to break an impasse that could see the world’s richest nation default on its debt, with potentially ruinous global results.
With a week to go before the US Treasury says it will run out of cash to pay its bills, the US dollar slid against key currencies and US stocks fell as markets measured the risk of an August 2 deadline passing without a breakthrough.
Top Senate Democrats and Republicans cautiously urged compromise even as Republican House Speaker John Boehner struggled to keep his conservative troops in line behind his plan for raising the $US14.3 trillion ($A13.11 trillion) US debt limit.
‘DEAD ON ARRIVAl’
“We’re willing to listen to all the good ideas. I’ll even listen to some bad ideas if it’ll help move down the road,” Democratic Senate Majority Leader Harry Reid said, even as he declared Boehner’s plan “dead on arrival.”
“We need to re-engage with the president,” said Republican Senate Minority Leader Mitch McConnell, who days earlier had washed his hands of negotiations with Obama and placed his hopes for an ambitious compromise in the Congress.
McConnell noted that Republicans only control half of Congress, and, in a message sure to rile Tea Party hardliners, told reporters: “I’m prepared to accept something less than perfect, because perfect is not achievable.”
The White House came out guns blazing at Boehner’s plan, warning that Obama’s advisors would push him to veto it in the unlikely event the measure survived the Democratic-led Senate.
Boehner insisted his plan, which Obama opposes because it would force another debt-ceiling showdown during the 2012 presidential election campaign, was the only “reasonable approach” – even as he tamped down a conservative revolt.
But the speaker suffered a setback late in the day when the Congressional Budget Office (CBO), the non-partisan last word in polarised Washington’s spending battles, said his bill would not cut as much spending as advertised.
Boehner, whose measure fell short of the $US1.2 trillion ($A1.1 trillion) in cuts over 10 years he wanted as the price for raising the debt limit $US1 trillion ($A916.59 billion), said through spokesman Michael Steel he was “looking at options to re-write the legislation”.
It was unclear how that would affect a vote on the bill, originally scheduled for Wednesday but now postponed until Thursday, amid concerns conservatives unsatisfied with the depth of its spending cuts might deny it even a majority of Republicans.
Washington hit its debt ceiling on May 16 but has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally.
If there is no deal, the United States, still recovering from the 2008 recession with unemployment hovering around 9.2 per cent, could be faced with tough choices- either a debt default or reneging on obligations like government benefits for the poorest, most vulnerable Americans.
Obama has agreed in principle to deep spending cuts, including savings from social safety net programs dear to his Democrats, but Republicans egged on by the Tea Party have refused his call for tax revenue increases targeting the rich and wealthy corporations.
Reid’s plan would lift the debt ceiling by $US2.7 trillion ($A2.47 trillion), lasting to 2013, tied to the same amount of spending cuts over 10 years, and does not include tax increases.
Christine Lagarde, the new head of the International Monetary Fund, said a US default would bring “serious” pain to the global economy and warned: “The clock is irremediably ticking, and people really have to find a solution.”
And Brazilian Finance Minister Guido Mantega, whose country’s economy is booming, said the United States needed to come “to its senses,” saying he believed there would be a solution “but I am worried by the turn of events”.
And while foreign stock markets have so far remained relatively immune to the troubles in Washington, US markets sank for a third straight day.
The Dow Jones Industrial Average slid 0.73 per cent the broader S&P 500 shed 0.41 per cent, and the tech-heavy Nasdaq Composite slipped 0.10 per cent.
The biggest sign of market disquiet was a clear move out of the US dollar on currency markets, while gold climbed six dollars to above $US1,620 an ounce in New York trade, though it was still below the record of $US1,624.07.
At 0800 AEST on Wednesday, the US dollar had sagged nearly one per cent against the euro, which traded at $1.4516, compared to $1.4375 a day earlier.
The US dollar lost another 0.6 per cent to the safe-haven Swiss franc, dropping to 0.8012 francs, and fell 0.5 per cent against the yen to 77.94 yen.
The pound also pushed up sharply against the greenback, buying $US1.6422 against $US1.6278 a day earlier.
Meanwhile, the Australian dollar cracked new highs above 110 US cents after the release of official inflation figures on Wednesday AEST.