Video: US on tenterhooks as vote on the debt ceiling goes down to the wire
AMERICA held its breath as a Republican deficit reduction plan headed to a close vote in the US Congress late last night, while the White House urged divided lawmakers to clinch a compromise to head off the risk of a debt default by the world's largest economy.
President Barack Obama's priority was to "lift the cloud and make sure that the United States does not default", White House spokesman Jay Carney said, five days before the Tuesday deadline for raising the US government's borrowing limit.
Partisan deadlock between Republicans and Democrats over how best to reduce the US deficit, and over what period, has blocked an agreement so far to allow the raising of the $14.3 trillion debt ceiling.
A failure to raise the debt limit by Tuesday could trigger a crippling default that would shake the global financial system, could tip the United States back into recession and see many federal employees and pensioners at risk of not receiving due payments.
While most analysts hope a default will be avoided by an 11th-hour deal, the risk remains for a damaging downgrade of the United States' top-notch credit rating, a move that would raise US borrowing costs and rattle global investors.
Mr Carney said the debt stalemate had "already had significant negative impact on the economy".
The Republican-controlled House of Representatives had tentatively scheduled a vote last night at 11pm (Irish time) on a deficit-cutting plan presented by the top Republican in Congress, House Speaker John Boehner.
Senate Majority Leader Harry Reid said he would move last night to kill House Speaker John Boehner's debt-ceiling proposal, paving the way for Senate votes this weekend on a possible compromise.
If the House passed the measure, Reid said he planned to bring Boehner's legislation immediately to the floor and "it will be defeated".
"No Democrat will vote for a short-term Band-Aid that would put our economy at risk and put the nation back in this untenable situation a few short months from now," Reid said.
That would allow Reid to accelerate negotiations among leaders on both sides in an attempt to avoid default.
The Senate is likely to begin voting this weekend on an alternative proposal from Reid to raise the debt ceiling by the full $2.4 trillion President Barack Obama has requested, while cutting $2.2 trillion over a decade.
Mr Boehner gained support among fellow Republicans for his plan after reworking it to cut $915bn over 10 years, $65bn more than his original approach.
The US Treasury will give priority to making interest payments to holders of government bonds when due if lawmakers fail to reach an agreement to raise the debt ceiling, according to an administration official.
The official requested anonymity because no announcement has been made. The Treasury has said about $90bn in debt matures next Thursday and more than $30bn in interest comes due August 15. Overall, more than $500bn matures in August.
Six-month Treasury bills maturing on Tuesday pared losses after the comments. As congressional leaders continued to wrangle, Obama administration officials will brief the public no earlier than after financial markets close Friday on priorities for paying the nation's bills if the debt limit isn't raised, a Democratic Party official said. (Reuters)
The debt limit plan from Speaker of the House Rep John Boehner (left) will likely face opposition in the Senate, led by majority leader Harry Reid (right) who said the bill would be "dead on arrival" and would have no chance of passing the Senate, and a veto threat from President Obama's White House.