Obama seeks to salvage U.S. debt ceiling deal

U.S. President Barack Obama summoned top lawmakers to a Saturday meeting to try to salvage a deal on the...

United States President Barack Obama. Picture: Mandy Wiener/Eyewitness News







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U.S. President Barack Obama summoned top lawmakers to a Saturday meeting to

try to salvage a deal on the government's borrowing limit from the wreckage of

deficit talks whose collapse pushed the world's largest economy closer to a

catastrophic default.

With the Treasury set to run out of money to

pay all of its bills on August 2, Obama said the window may have closed for a

"grand bargain" of spending cuts and tax increases in exchange for

Congress raising the $14.3 trillion (8.76 trillion pounds) debt ceiling.

Credit rating agencies also want spending

restraints for the United

States to keep its prized AAA rating that

makes U.S. Treasuries the solid foundation for global investors and lowers

borrowing costs for state governments, businesses, homeowners and consumers.

"We have now run out of time,"

Obama said on Friday after John Boehner, the top Republican in Congress, broke

off talks on a deficit reduction package worth more than $3 trillion over 10


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.

Obama, a Democrat, called Boehner and other

congressional leaders to a meeting at 11 a.m. EDT (4 p.m. British time) at the

White House on how the debt ceiling can be raised by August 2.

"They are going to have to explain to me

how it is that we are going to avoid default," Obama said.

Boehner, the speaker of the House of

Representatives, said he would attend. Senate Republican leader Mitch

McConnell, Senate Democratic leader Harry Reid and Nancy Pelosi, the top

Democrat in the House, were also summoned.

Boehner said he was confident the debt

ceiling would be raised next week. But he will have to overcome resistance from

Tea Party conservatives in his own party and could run into problems for having

signalled a willingness to give ground on revenue increases in closed-door

talks at the White House.


Both Republicans and Democrats chafed at the

compromises a far-reaching deal would require before the presidential and

congressional elections in November 2012, with each side accusing the other of

not doing enough and demanding too much.

Boehner said talks collapsed because the

White House insisted on raising taxes while refusing to get serious about

cutting spending and overhauling retirement and healthcare programs. Democrats

say tax loopholes and Bush-era tax cuts for the wealthy must end as part of a U.S. fiscal


A major barrier was how much revenue would

be raised via tax reform -- with Obama wanting $1.2 trillion over 10 years and

Boehner putting $800 billion on the table.

"If not reversed within the next few

days through crisis negotiations, this breakdown will be highly detrimental to

the already fragile health of both the U.S. and global economies," Mohamed

El-Erian, co-chief investment officer at Pimco, the world's top bond fund

manager, told Reuters.