WASHINGTON, (Reuters) – Top Republicans and Democrats worked behind the scenes yesterday on a compromise to avert a crippling U.S. default, looking to salvage a last-minute deal from rival debt plans that have little chance of winning congressional approval on their own.
With financial markets increasingly on edge, the White House said it saw no alternative to striking a deal to raise the government’s borrowing limit by an Aug. 2 deadline to allow the world’s largest economy to keep paying all of its bills.
“People keep looking for off-ramps. They don’t exist,” White House spokes-man Jay Carney told reporters, saying the government would be “running on fumes” after the deadline unless the limit was raised.
Even if a deal is reached to lift the $14.3 trillion debt ceiling, a budget plan that flinches from hefty cuts in the deficit may result in a downgrade of the top-notch U.S. credit rating. This would push up U.S. borrowing costs and rattle global investors.
The faltering moves to break the deadlock are weighing on markets. Along with the uncertainty, Wall Street was hit by weak earnings and lackluster economic data, suffering its worst day in eight weeks.
“The market is beginning to show real concerns in terms of a default. I don’t think it’s going to happen … (but) are we headed for a downgrade? That is becoming more of a possibility as each day goes by,” said Peter Cardillo, chief market economist at Avalon Partners in New York.
The U.S. dollar rebounded after a sell-off this week but policy makers in countries from Japan to France fretted over how a crisis of confidence in U.S. solvency could spill into the international economy.