Washington: US President Barack Obama and top Republicans faced growing pressure at home and abroad on Thursday to stop deficit-reduction talks from spiraling out of control and sending shockwaves through the global financial system.
Markets reacted skittishly after the fourth straight day of talks between Obama and congressional leaders hit a new low on Wednesday.
The Democratic president clashed with Republican lawmakers during an acrimonious two-hour session that produced no progress toward a deal, and a leading Republican said Obama walked out of the meeting.
China, the United States' biggest foreign creditor with more than USD 1 trillion in Treasury debt as of March, urged Washington to adopt responsible policies to protect investor interests.
The Foreign Ministry comments followed a warning by Moody's Investors Service that it might strip the United States of its gold-plated credit rating in coming weeks if the USD 14.3 trillion limit on America's borrowing was not raised.
Standard & Poor's has also privately told US lawmakers and top business groups that it might cut the rating if the government fails to make any of its expected payments, including Social Security checks, even if it makes all of its debt payments, a congressional aide said on Thursday.
The US Treasury has warned that it will run out of money after Aug. 2 to pay all of the country's bills if a deal is not reached to raise the debt ceiling, which caps the amount of money the United States can borrow.
Talks will continue on Thursday and Obama is considering a weekend meeting at Camp David, a source familiar with the matter said, but the source stressed that no decision had been made. Two senior administration officials said there were no immediate plans to head to the presidential retreat in Maryland.
The prospect of a cut in the United States' AAA credit rating hit stocks prices globally and weakened the dollar on Thursday. US bond prices fell in New York and yields rose, in part due to the Moody's warning.
Put Aside Politics
Business leaders have also thrown in their powerful voice, calling on Congress to put aside politics and reach an agreement to allow the debt ceiling to be raised.
"It is an imperative that the debt ceiling be fixed and it's an imperative that the United States shows fiscal discipline," said JP Morgan Chase chief executive Jamie Dimon.
"No one, no one can tell me with certainty that a default wouldn't cause catastrophe and therefore it's irresponsible to take that chance," he told reporters.
The debt talks on Wednesday lasted nearly two hours and were the stormiest yet. Eric Cantor, the No. 2 Republican leader in the House of Representatives, said the talks became so acrimonious that Obama walked out, but Democratic officials said that account was overblown.
The session was marked by partisan recriminations and laid bare stark differences between the Democratic president and his Republican rivals over taxes and deficits.
"Republicans will not be reduced to being the tax collectors for the Obama economy," Senate Republican Leader Mitch McConnell said on Thursday.
The talks don't have just fiscal implications. The outcome could also have impact the 2012 presidential campaign, where Obama is seeking re-election and Republicans hope to oust him.
Though both sides agree on a need to raise the debt ceiling, they disagree over how to get there.
McConnell has proposed a backup plan of sorts that would allow Obama to effectively raise the debt ceiling on his own and decouple it from the spending cuts Republicans want. Senate Democrats are working with McConnell to modify the plan, but it has little support from House Republicans.
Failure to raise the debt ceiling could spook investors, causing US interest rates to surge, stock prices to plummet, pushing the United States back into recession and roiling global markets, private economists and the Obama administration have warned.
Republicans demand USD 2.4 trillion in spending cuts in return for supporting an increase in the debt limit. Democrats and Obama want tax increases for the wealthy as part of a deal.
The two sides will talk again starting at 4:15 p.m. EDT (2015 GMT), and tax will dominate the discussions. The president previously set a Friday deadline for agreeing a way forward so there is enough time to get any deal through Congress.
First Published: Thursday, July 14, 2011, 23:04