Obama calls again for a grand bargain on debt, but time runs short

President Barack Obama suspended U.S. budget negotiations for the day on Friday to give congressional leaders a chance to come up with a "plan of action."
President Barack Obama suspended U.S. budget negotiations for the day on Friday to give congressional leaders a chance to come up with a "plan of action." Olivier Douliery/Abaca Press/MCT

WASHINGTON — President Barack Obama said Friday that he’s “hopeful” about breaking the “logjam” over a way to raise the federal debt ceiling, saying he’s open to brokering a compromise with Republicans who have rejected his call for tax increases.

Warning that “we’re obviously running out of time,” Obama pressed congressional leaders at a morning press conference to come back to him with a proposal. Treasury Secretary Tim Geithner has warned that the U.S. will go into default on its debts if Congress doesn't raise the debt ceiling, allowing more borrowing, by Aug. 2.

Two debt-rating agencies _Standard & Poors and Moody's _ have warned that they are close to lowering the U.S. credit rating because of concern that Washington won't raise the debt ceiling, running risk of default. Financial authorities warn that could panic financial markets, causing them to crash and plunging the U.S. economy into deep recession.

“If they show me a serious plan, I'm ready to move, even it requires some tough decisions on my part,” Obama said of lawmakers at his second press conference of the week on the subject.

Obama, who has sought to trim $4 trillion from the deficit over the next 10 years with a mix of unspecified spending cuts and tax hikes, said he’s still pushing for the “big deal" in talks with congressional leaders from both parties and both chambers.“But what I also said to the group is, ‘If we can't do the biggest deal possible, then let's still be ambitious, let's still try to at least get a down payment on deficit reduction."

He said his “fallback position” and the “least attractive option,” would be raising the debt ceiling without any cuts. A version of that approach is gaining support in the Senate among both parties.

Republicans insist they will not accept any tax increases. Democrats are wary of cuts in spending on favored programs, especially Medicare, Social Security and Medicaid. Five straight days of negotiations at the White House since Sunday yielded no visible movement toward compromise.

Obama sought to underscore the gravity of the situation, calling the Washington tussle over deficits and debt “not some abstract issue. The Congress has run up the credit card, and we now have an obligation to pay our bills.’

He warned that failing to raise the debt ceiling – as some Republicans have suggested – could causing a hike in interest rates “for everybody all throughout the country.” If global investors think that purchasing U.S. debt is risky, they'll demand higher interest rates before buying U.S. bonds. That would drive up interest rates across the board, for everything from mortgages to loans for cars and student aid.

That would mean, he said, “effectively, a tax increase on everybody, because suddenly, whether you're using your credit card, you're trying to get a loan for a car or a student loan, businesses that are trying to make payroll, all of them could end up being impacted as a consequence of a default. “

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