Economy Politics USA

GOP and Democrats : debt-limit emergency fallback plans

 

WASHINGTON – Talks between Democrats and Republicans on budget cuts to be made by the U.S. government in order to increase its borrowing capacity and to avoid non-payment were still deadlocked on Sunday, with each side remaining positions unacceptable to the other, while the deadline of August 2 is fast approaching.

The representatives of Congress and the administration of Barack Obama hoped to announce a draft agreement before 16 pm (Eastern Time) Sunday, just in time for the opening of Asian markets.
In the late afternoon Sunday, Obama said he would meet the leader of the Democratic majority in the Senate, Harry Reid and minority leader of the Democratic House of Representatives, Nancy Pelosi, later in the evening to discuss the situation.

The Republican chairman of the House of Representatives, John Boehner, for his part said he was working with its members on a two-stage plan that would raise the debt ceiling, currently set at 14 300 billion dollars. Obama and the Democrats have insisted that the plan would raise enough to limit the file does not have to be reopened before the election of 2012.

The chief of staff to Obama, Bill Daley, responded with a “yes” unequivocal when asked during a television interview on Sunday, when U.S. President persists in his refusal to sign an increase in capacity ‘short-term borrowing. A decision that Republican Senator Tom Coburn was later described as “ridiculous” because it was such a proposal would be presented.

Republican leaders called their rank and file back to Washington earlier than expected for the new work week and set a mid-afternoon Monday meeting to go over the debt-limit legislation.

The stakes in these negotiations are important. Most major international credit rating threatened to downgrade the credit rating of AAA in the United States if they had no confidence that the country will not end up in default for the first time in its history.

If that happened, it would mean that the U.S. government could not meet its financial obligations as of next month, including interest and principal on Treasury bills, checks, social security pensioners and invoices its suppliers.

A default would also increase the borrowing cost by the United States. Americans seeking a loan to buy a house or a car would also interest rates to jump up, just as those who have large balances on their credit card.

Barack Obama warned that this would result in higher taxes while many economists believe that the default could cause a new recession in the U.S., or worse, create chaos in the global economy.

The main obstacle to increasing the capacity for long-term debt comes from the House of Representatives dominated by Republicans, including dozens of new Republican elected last November and supported by the Tea Party.

Almost all House Republicans have promised not to raise taxes under any circumstances and fear of not getting re-elected in the primaries of 2012 if they break their oaths.

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