Angry Words, Higher Stakes as US Debt Talks Hit Day 5

Posted July 14th, 2011 at 10:00 am (UTC-5)
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U.S. President Barack Obama and lawmakers are trying again to reach a deal to raise the country’s debt limit and prevent a possible default that could rattle markets across the globe.

Talks between the Obama administration and congressional leaders enter day five Thursday, following new warnings from the head of the U.S. central bank and a leading credit rating agency.

The last round of talks ended abruptly at the White House late Wednesday.

Republican leaders said President Obama stormed out of the meeting, rejecting Republican proposals to buy more time with a short-term debt limit increase. Democratic aides say the president simply ended the meeting early after complaining of political posturing and a lack of compromise.

U.S. Federal Reserve Chairman Ben Bernanke has warned the country could be facing a “huge financial calamity” if the two sides fail to raise the $14.3 trillion borrowing limit by the August 2 deadline.

Moody’s Investors Service warned Wednesday that the U.S. risks losing its top credit rating if lawmakers fail to rich a deal that increases the debt limit and decreases the deficit. A downgraded U.S. bond rating would likely lead to higher interest rates for U.S. loans.

A Chinese credit rating agency made a similar warning Thursday, saying it has placed U.S. sovereign debt on a negative watch. Dagong Global Credit Rating Company says it will downgrade U.S. credit ratings “if there is no significant change in its repayment ability within the period of observation.” China is the biggest buyer of U.S. sovereign debt.

These warnings about the U.S. credit rating are not the first.

Standard and Poor’s Ratings Services expressed concerns in April, lowering its long-term credit out look for the U.S. from “stable” to “negative.”

Democrats say Thursday’s negotiations will focus on tax increases, which Republicans have rejected in favor deeper spending cuts. Democrats agree that spending needs to be cut, but they argue that closing the budget gap also will require raising taxes and closing tax loopholes for wealthy people and big corporations.

On Tuesday, the top Senate Republican, Mitch McConnell, said it may not be possible to reach a long term budget solution, and instead he proposed that the president use parliamentary maneuvers to raise the debt ceiling without Republican support.

The president has proposed a $4 trillion package of spending cuts and revenue increases over 10 years, but the Republicans say they will not allow tax increases, and want to focus only on cutting government spending.

Democrats strongly oppose cuts in social programs for the poor and elderly. They say raising taxes and closing tax loopholes for the wealthy and big corporations is essential because the government needs more revenue to close the budget gap.

Republicans say it makes no sense to raise taxes on wealthy people who can invest in the economy and create jobs. The speaker of the House of Representatives, Republican John Boehner, has said no deal can pass the House unless it rules out tax increases and cuts spending.