Washington: US President Barack Obama summoned top lawmakers to a Saturday meeting to try to salvage a deal on the government's borrowing limit from the wreckage of deficit talks whose collapse pushed the world's largest economy closer to a catastrophic default.
With the Treasury set to run out of money to pay all of its bills on Aug 2, Obama said the window may have closed for a "grand bargain" of spending cuts and tax increases in exchange for Congress raising the USD 14.3 trillion debt ceiling.
Credit rating agencies also want spending restraints for the United States to keep its prized AAA rating that makes US Treasuries the solid foundation for global investors and lowers borrowing costs for state governments, businesses, homeowners and consumers.
"We have now run out of time," Obama said on Friday after John Boehner, the top Republican in Congress, broke off talks on a deficit reduction package worth more than USD 3 trillion over 10 years.
Financial markets are growing more edgy and US banks and businesses are making contingency plans for the possibility of a debt default that would drive up interest rates, sink the dollar and ripple through economies around the world.
Obama, a Democrat, called Boehner and other congressional leaders to a meeting at 11 am EDT (1500 GMT) at the White House on how the debt ceiling can be raised by Aug 2.
"They are going to have to explain to me how it is that we are going to avoid default," Obama said.
Boehner, the speaker of the House of Representatives, said he would attend. Senate Republican leader Mitch McConnell, Senate Democratic leader Harry Reid and Nancy Pelosi, the top Democrat in the House, were also summoned.
Boehner said he was confident the debt ceiling would be raised next week. But he will have to overcome resistance from Tea Party conservatives in his own party and could run into problems for having signaled a willingness to give ground on revenue increases in closed-door talks at the White House.
Both Republicans and Democrats chafed at the compromises a far-reaching deal would require before the presidential and congressional elections in November 2012, with each side accusing the other of not doing enough and demanding too much.
Boehner said talks collapsed because the White House insisted on raising taxes while refusing to get serious about cutting spending and overhauling retirement and healthcare programs. Democrats say tax loopholes and Bush-era tax cuts for the wealthy must end as part of a US fiscal rehabilitation.
A major barrier was how much revenue would be raised via tax reform -- with Obama wanting USD 1.2 trillion over 10 years and Boehner putting USD 800 billion on the table.
"If not reversed within the next few days through crisis negotiations, this breakdown will be highly detrimental to the already fragile health of both the US and global economies," Mohamed El-Erian, co-chief investment officer at Pimco, the world's top bond fund manager, told Reuters.