REPUBLICANS holding up the increase in the American debt limit -- a move that could produce the first ever US debt default -- were pushing ahead yesterday with a spending cut plan that has virtually no chance of becoming law. President Barack Obama promised to veto such a bill should it reach his desk.
House Republicans were preparing to put to a vote today their plan that axes spending, rules out any tax increases, and calls for a balanced-budget amendment to the US Constitution that would require the government to not spend more than it takes in.
The effort is primarily an opportunity for them, particularly dozens of new lawmakers elected to the House with the support of the Tea Party movement, to showcase their ideological purity by putting the country on course for a balanced budget.
The White House issued a stinging rejection of the plan yesterday, saying Republicans were playing politics with a critical issue that could cause "a severe blow to the economy."
"Instead of pursuing an empty political statement and unrealistic policy goals, it is necessary to move beyond politics as usual and find bipartisan common ground," the White House said.
Congress and Mr Obama face an August 2 deadline for raising the debt limit above the current $14.3 trn (€10.5trn) level. Failure to do that would leave the US unable to meet its obligations to holders of Treasury bonds and domestic obligations such as payments to recipients of social security. That could create turmoil in world and domestic financial markets and hobble global economies that are still struggling to recover from the financial crisis that began in 2008.
To avoid that, Senate majority leader Harry Reid and his Republican counterpart, Sen Mitch McConnell, are said to be working on a plan that would allow Mr Obama to raise the debt limit without prior congressional approval, while exacting smaller spending cuts.
But any such deal would also require passage in the House. To that end, Mr Obama met quietly on Sunday morning with House Speaker John Boehner and Majority Leader Eric Cantor. A Boehner spokesman, Brendan Buck, said "there is nothing to report in terms of an agreement or progress".
But after an appearance in the White House Rose Garden yesterday, Mr Obama responded to a shouted question by saying: "We're making progress."
In seeking a "Grand Bargain" that includes massive spending reductions, he has vowed to veto any legislative measure that does not also include higher taxes for the wealthiest citizens and corporations, including the elimination of tax breaks for hugely profitable oil companies.
The president's approach -- spending cuts coupled with more taxes on the wealthiest -- appears to be gaining ground with voters.
If the current debt ceiling isn't increased by August 2 -- which past Congresses have done no matter which party was in control -- it will have far-reaching consequences.
Default likely would produce higher interest rates on mortgages, car loans and credit cards.
It also would make government borrowing more expensive and could stop government checks from going out to retirees. All that holds the potential for turmoil not only domestically but also in world financial markets and international economies.