Obama warns Republicans: compromise or we default
US Congress still deadlocked over decision to introduce debt limit increase
Published 15/07/2011 | 05:00
Expected to be the annual US deficit for the third year in a row
US President Barack Obama has bluntly warned Republican congressional leaders that they must compromise quickly if the government is to avoid an unprecedented default.
The speech yesterday marked an acrimonious end to a negotiating session at the White House that produced no evident progress toward a compromise on increasing the US debt limit.
Mr Obama set aside his normal moderate tone to lay it on the line to Republicans. "Don't call my bluff," he insisted. His remarks carried the veiled threat that any attempt to pass a short-term debt limit increase would be vetoed.
Republicans are demanding deep spending cuts as the price for allowing a debt limit increase to pass.
But negotiations have bogged down over Mr Obama's demand for tax increases that Republican politicians say they will not accept. Another round of talks is set for today.
Two Democratic officials quoted Mr Obama as telling Republicans: "Enough is enough. We have to be willing to compromise.
"It shouldn't be about positioning and politics."
However, with a threatened default less than three weeks away, Moody's Investors Service announced it was reviewing the US bond rating for a possible downgrade, and the Treasury said the annual deficit was on a pace to exceed $1 trillion for the third year in a row.
The US central bank chief has said that a debt default would be a disastrous "self-inflicted wound" and that lawmakers must heed the downgrade warnings of ratings agencies.
Federal Reserve chairman Ben Bernanke said that the protracted battle in Congress over raising the debt ceiling was endangering its top-rated credit reputation.
"We're already seeing threats of downgrades from rating agencies," Mr Bernanke told the Senate Banking Committee.
"A tremendous asset of the United States (is) the quality and reputation of our Treasury securities -- and we benefit from it with low interest rates," he said in semi-annual testimony to Congress.
"So I would urge Congress to take every step possible to avoid defaulting on the debt or creating even any significant probability of defaulting on the debt."
With the negotiations at a seeming standstill, Republicans drew a warning of a different sort, from an unlikely source -- the party's senate leader, Mitch McConnell. He warned fellow conservatives that a potentially catastrophic failure to raise the US debt limit would probably ensure Mr Obama's re-election next year.
Mr McConnell's comments were fresh evidence of deep Republican division on the issue.
He spoke as Mr Obama and congressional leaders met for a fourth straight day, struggling to avert an unprecedented government default threatened for August 2.
With talks in deadlock, Treasury Secretary Tim Geithner has warned that a default could pose a catastrophic risk to the economy, still recovering from the worst recession in decades.