U.S. yet to break through debt impasse

15:47, July 16, 2011      

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With the five-day closed-door White House debt talks failing to seal a deal, President Barack Obama Friday ratcheted up pressure on Republicans at his second press conference in one week, a testament to the paramount importance of current debt talks.

Despite warnings from rating agencies and institutions including the International Monetary Fund (IMF), investors and U.S. debt holders wonder whether the United States can finally emerge from the stalled debt negotiations this summer.

Dagong Global Credit Rating Co., Ltd., a rating agency from China, the largest foreign holder of U.S. treasury bonds, cautioned Thursday that it was putting the U.S. credit rating on negative watch for a possible downgrade, with a similar move from Moody's Investors Service on Wednesday and one from Standard & Poor's (S&P) on Thursday.

Obama Friday urged Republicans to make swift moves to soothe market jitters and secure the nation's gold-plated credit rating.

The Washington-based IMF also pressed the world's largest economy to raise the debt ceiling to avoid global repercussions due to the key role of the U.S. economy in the world, saying the current debt dynamics with unchanged policies are unsustainable.

"The eyes of the world are on us, and we need to make sure we stand together and send a definitive signal that we're going to take the steps necessary to avoid default," U.S. Treasury Secretary Timothy Geithner said Thursday after meeting congressional leaders, adding that progress also had to be made in dealing with long-term fiscal problems.

However, with the Aug. 2 deadline approaching fast, the solution to averting a debt crisis has been complicated by the stubbornness of some of Obama's Republican foes, as they said that they did not believe a debt default would have catastrophic economic results as claimed by the administration.

Freshman legislator Eric Crawford and 62 other representatives have sent a letter calling on Obama to prioritize payments to debt-interest, Social Security and Medicare and military compensation in the event a debt ceiling agreement is not reached by Aug. 2.

Obama adopted a no-nonsense approach by giving Republicans until this weekend to craft a massive debt reduction deal, saying that "if they show me a serious plan, I'm ready to move, even if it requires some tough decisions on my part."

Although both parties stressed that the debt reduction should be "balanced" in nature, they are unwilling to take on their own sacred cows, slowing the negotiation process and making the markets increasingly impatient.

Obama highlighted the new investments to shore up short-term economic growth and pressed for heavier taxes on the wealthy, while Republicans pushed for no new taxes and steep budget cuts to honor their mid-term election promises.

House Majority Leader Eric Cantor said Friday that the House would bring a measure forward next week named the "Cut, Cap and Balance" bill, which would provide a balanced approach and adopt a balanced budget amendment to the Constitution that would require Washington to balance its budget every year.

"We don't need a constitutional amendment to do our jobs," Obama said Friday, meaning that such a move would amount only to a symbolic showdown which has slight chance of clearing the Democrat-controlled Senate.

Experts say a last-ditch option offered by Senate Republican Leader Mitch McConnell might serve as a possible solution to the negotiation standstill.

This dramatic plan would establish a legal framework to enhance Obama's borrowing authority to win debt ceiling increases up to three times over the coming year, but would put nearly all the burden on the Obama administration.

The plan would give Obama the power to have an increase in the debt limit of up to 2.5 trillion dollars, unless both House and Senate vote by two-third margins against him.

Obama Friday called the McConnell plan "constructive," adding that "if Washington operates as usual and can't get anything done, let's at least avert Armageddon."

Although Obama noted that this plan could solve the problem of raising the debt ceiling, it could not help put the nation's fiscal house in order over the long run.

With the clock ticking toward an unprecedented debt default, observers are watching and waiting to see whether Washington can deliver the "big package" put forward by Obama.

Source: Xinhua
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