Obama, Congress fail to break debt deadlock

WASHINGTON, (Reuters) – U.S. lawmakers failed to  achieve a budget breakthrough and instead worked on rival plans  yesterday in an impasse that heightened prospects for a  catastrophic U.S. debt fault.

With time running out, Republican and Democratic lawmakers  split into opposite camps and held talks among themselves.  There were no signs of a deal emerging to head off a default in  nine days that could trigger global economic calamity and  downgrade America’s Triple-A credit rating.

Lawmakers missed a self-imposed deadline of producing a  deficit-reduction deal by the time Asian markets opened yesterday, but planned to outline a proposal today. A deficit  deal is needed to permit a vote to increase the $14.3 trillion  U.S. debt ceiling by Aug. 2.

President Barack Obama heard details of a Senate Democratic  plan that would rely on spending cuts, not new tax revenue,  which would violate one of his key demands.

Edgy markets responded to the stalemate, but not in  dramatic fashion.

Although some had predicted global markets would fall apart  without a deal before the Asian markets opened on Sunday  evening, the reaction was relatively modest as investors pulled  out of riskier investments like stocks and headed for safe  haven assets like gold, pushing the metal to a new record.

U.S. stock futures fell, signaling a poor open for U.S.  markets and showing that investors were increasingly worried  about the failure of legislators to coalesce around one  approach.

Early currency trading suggested a move away from the  U.S. dollar, with the biggest drop in the greenback coming  against the Swiss franc.

“The fact that they seem to be jumping from one type of  proposal to another and not converging on anything is beginning  to worry markets,” said Steven Englander, head of G10 FX  strategy at Citigroup.

“I also think damage is being done by setting deadlines that  aren’t going to be met,” he said.

The battle is over how deeply to cut government spending on  social programs and whether to increase taxes, reflecting the  challenges of divided government in an age when Republicans and  Democrats are beholden to their right and left bases of  support.

Democrats want to ease the pain of spending cuts by  increasing taxes on the wealthy, a prospect Republicans  oppose.

“This is a like a long labor, with the dad in the waiting  room, waiting to see if it’s a boy or a girl and the doctor’s  coming out and saying ‘I can’t tell you yet,’“ Republican  Representative Jack Kingston told Reuters.

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