Times 2

US debt crisis now a race against time

Market tumbles as deadline nears while economists warn of global turmoil
Democrat-dominated Senate rejects bill passed by Republican-domniated House

WASHINGTON, July 30 (AFP) - Spurred on by President Barack Obama, US lawmakers set the stage late Friday for a frantic beat-the-clock weekend effort to avert a catastrophic debt default sure to rattle the world economy.

In a grim warning of what may come if there is no breakthrough by Tuesday's deadline, US markets tumbled for a fifth straight day -- a month of gains wiped out in a week of losses due to poor US growth and the political stalemate.

“We are almost out of time. We need to reach a compromise by Tuesday so that our country will have the ability to pay its bills on time, as we always have,” Obama said in appeal for Republicans and Democrats to carve out a deal.

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 in the wake of the 2008 global meltdown.

The Republican-held House of Representatives late Friday passed Republican Speaker John Boehner's bill to avert a default, but within two hours it had been rejected by 59-41 votes in the Democratic-led Senate.

Democratic Senate Majority Leader Harry Reid said he hoped Republican Senate Republican Minority Leader Mitch McConnell would now help work out a final deal the outlines of which were far from clear with the clock ticking down.

The White House also swiftly called on US lawmakers to work together for a compromise deal.
“Now that yet another political exercise is behind us, with time dwindling, leaders need to start working together immediately to reach a compromise that avoids default and lays the basis for balanced deficit reduction,” said White House spokesman Jay Carney.

But McConnell accused Democrats of “ginning up opposition to everything” Republicans offer -- but declared “I eagerly await the majority leader's plan for preventing this crisis.”A key sticking point was the duration of any debt limit increase: Reid rejected Boehner's plan in large part because it would set the stage for another high-stakes showdown in a few months.

“We cannot be in this battle all the time,” said Reid, whose own plan would spare Obama another politically fraught debt battle as he seeks a second term in the November 2012 elections. 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 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 amendment, has offered a blueprint that would raise the debt ceiling by $2.7 trillion while cutting spending by some $2.2 trillion over 10 years.
He was aiming to set up procedural votes on the road to final Senate passage of a compromise on Monday or Tuesday.

That would leave it up to the bitterly divided House to take the final step, a vote that would require Democrats and Republicans to pass the legislation in a down-to-the-wire endgame with unprecedented financial stakes.

Obama insisted both sides were “in rough agreement” on how much spending can be cut “responsibly,” and on the steps to take in the coming months on tax reforms as well as some kind of enforcement mechanism.

But when a well-wisher at the White House told Obama that he owed him a poker game, the president responded: “I got some high stakes poker going on right now.”Obama's appeal came as a new poll by the respected Gallup organization suggested the standoff was hurting his job approval ratings, which slumped to a a personal low of 40 percent, down from 50 percent as of June 7.

In more bad news for the US economy, struggling to recover from the 2008 financial crisis, government data released Friday showed economic growth had nearly stalled in the first half. The US economy grew at a dead-pace 0.4 percent in the first quarter and only 1.3 percent in the second quarter of 2011, the Commerce Department said.

Markets around the world remained on edge as Asian stocks fell amid fears that US lawmakers will not break the deadlock.]

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