US Debt-Deficit Talks Enter Fifth Day

Posted July 14th, 2011 at 2:15 am (UTC-5)
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U.S. President Barack Obama meets Thursday with Republican and Democratic leaders for a fifth day of tense negotiations on a deficit reduction plan tied to an increase in the nation’s borrowing limit.

Republican leaders said Wednesday’s talks at the White House ended abruptly, with President Obama storming out of the meeting after sharply rejecting Republican proposals to buy more time with a short-term debt limit increase. But Democratic aides say the president simply ended the meeting early after complaining of political posturing and a lack of compromise.

On Wednesday, U.S. Federal Reserve Chairman Ben Bernanke warned the economy could fall into a severe recession if congressional Republicans and President Obama can not reach a deal to raise the nation’s $14.3 trillion borrowing limit by August 2. He said that without a deal, the nation eventually would default on some of its debt and be forced to cut payments to pensioners, soldiers and others.

Meanwhile, Moody’s Investors Service warned Wednesday that the U.S. risks losing its top credit rating if lawmakers fail to reach a deal. 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.

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.