Obama to Address Debt Crisis

Posted July 15th, 2011 at 5:55 am (UTC-5)
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U.S. President Barack Obama will hold a news conference at the White House Friday morning to discuss his negotiations with congressional leaders over raising the national borrowing limit and decreasing the deficit.

At the end of a fifth day of talks Thursday, Mr. Obama told negotiators it is “decision time,” and gave them until Saturday to evaluate their options in hopes of reaching some kind of an agreement.

The top two leaders in the U.S. Senate are working on a proposal that will allow the president to raise the debt limit on his own without prior congressional approval. Democratic Majority Leader Harry Reid said talks are focused on Republican leader Mitch McConnell’s plan that would give Mr. Obama the authority to raise the debt limit by $2.5 trillion in three separate installments, while imposing several trillion in spending cuts over the next decade.

Mr. Obama and congressional leaders are in contentious negotiations to raise the $14.3-trillion borrowing limit while also cutting spending. But talks have stalled over disagreements about the need to raise taxes. If the borrowing limit is not raised by August 2, the U.S. may have to stop payments on some of its obligations.

The powerful credit rating agency Standards and Poors has put the United States on its credit watch list, warning there is a “substantial likelihood” it could downgrade the country’s triple-A rating because of the ongoing battle over decreasing the deficit and increasing the borrowing limit.

In a statement Thursday, the rating agency said it believes there is an increasing risk of a “substantial policy stalemate” that would continue even if politicians manage to agree to raise the debt ceiling in the short term. S&P said it may lower the U.S. rating within the next three months if it finds the government has not, or is not close to, achieving “a credible solution” to the problem of the ballooning national debt.

S&P joins Moody’s Investors Service, which warned Wednesday 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.

Top U.S. financial officials Thursday issued a new round of warnings about the potential catastrophe that awaits if lawmakers fail to raise the country’s debt limit in time.

Treasury Secretary Timothy Geithner said Washington needs to meet its financial obligations and “it’s time we move.”

Federal Reserve Chairman Ben Bernanke told a Senate committee any failure to raise the debt limit would have a “calamitous outcome.” He warned excessive spending cuts could damage the fragile economic recovery.

There are also growing calls from businesses and banking firms for a solution.

The head of one of the biggest private U.S. financial firms Thursday told reporters it is “imperative that the debt ceiling be fixed.”

JP Morgan Chase Chief Executive Jamie Dimon said it would be irresponsible for the country to default on its debt because the result could be catastrophic.

A Chinese credit rating agency said Thursday 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.