Republican rebels force new delay in US debt crisis

WASHINGTON, (Reuters) – Urgent efforts to avoid an  unprecedented U.S. debt default hit another snag yesterday  when some rebel Republican lawmakers refused to back a budget  deficit plan proposed by their own congressional leaders.

John Boehner

After hours of trying to get enough votes, the Republicans  who control the House of Representatives put off action for the  night, further delaying any compromise with Democrats to stop  the countdown toward the government running out of money to pay  all of its bills from next Tuesday.

The delay resulted from House Speaker John Boehner’s need  for more time to try to overcome objections from conservative  rebels in his own party.

It was not immediately clear what Boehner intended to do  regarding the legislation or when a vote might be held.

He has been grappling with Republican lawmakers such as  Mick Mulvaney, a supporter of the Tea Party movement that wants  deeper spending cuts than Boehner has proposed.

“I’m still a no,” Mulvaney said before the vote was  canceled for the night.

Lawmakers must lift the government’s $14.3 trillion  borrowing limit by Tuesday or risk a devastating default and  downgrade of the top-notch credit rating that helps make U.S.  debt a pillar of the global financial system.

Many Americans are outraged that Washington cannot reach a  deal after many weeks of polarized and acrimonious debate.

World markets, unnerved by the risk of a U.S. default or  downgrade, watched anxiously. The U.S. stock market’s broad S&P  500 index fell for a fourth day and interest rates soared on  some Treasury bills that mature in August.

The dollar sunk to a fresh four-month low against the yen  at 77.48 yen after the announcement that the House would not  vote on Thursday evening.

Even with a deal to lift the debt limit, a downgrade of the  U.S. credit rating is likely unless a big dent is made in the  deficit. A downgrade would raise U.S. borrowing costs, hurting  an already weak economy, and rattle global investors.

International Monetary Fund chief Christine Lagarde warned  of the risks of Congress failing to raise the debt ceiling,  which would mean the U.S. government runs out of money to pay  all of its bills after Aug. 2.

“One of the consequences could be a decline of the dollar  as a reserve currency and a dent in people’s confidence in the  dollar,” Lagarde told PBS NewsHour in an interview.
U.S. financial executives added their voices to calls from  the business community for Congress to strike a deal that would  banish the specter of default.

“A WHOLE NEW STAGE”      

Once the House acts one way or the other, action will move  to the Democratic-controlled Senate. Boehner’s plan is doomed  in the Senate, where Democratic Leader Harry Reid is pushing  his own deficit reduction plan.

But after both chambers have their say, frantic talks are  expected this weekend to seek a compromise to permit a vote on  raising the debt ceiling and staving off a default on Tuesday.

“I think there will be a whole new stage of the Senate and  House having to come together to avoid August 2nd as being a  day that has never happened in the U.S.,” White House chief of  staff William Daley told CNN.

Republican leaders were engaged in arm-twisting as they  tried to secure the 217 votes needed to pass the bill in the  House and avoid a humiliating defeat.

A stream of lawmakers who had decided to vote against the  plan came and went from Boehner’s office. Whatever was said did  not seem to be changing many minds.

Republican Representatives Louie Gohmert and Joe Walsh said  they would still vote against the bill. Trent Franks and Jeff  Flake would not say where they stood.

Boehner’s plan would pair about $900 billion in cuts with a  short-term debt ceiling increase. Lawmakers would have to come  up with further spending cuts to raise the debt ceiling again  in several months — just as the campaign heats up for the  congressional and presidential elections in November 2012.

Reid’s plan, backed by Demo-cratic President Barack Obama,  would cut $2.2 trillion from the deficit over 10 years without  raising taxes and extend the debt ceiling through next year.
Jared Bernstein, a former economic adviser to Vice  President Joe Biden, said the chances of a compromise could be  boosted by the likely failure of Boehner’s legislation.

“What has been missing from House Republicans all along is  the spirit of compromise … and if their bill were to pass  they would have considerably more leverage than they will  otherwise if it fails,” said Bernstein.

At the White House, Obama and his team worked late into the  evening as well to avert a default that would scar his  presidency no matter who was at fault.

Despite the gridlock, Congress could kick into higher gear  as pressure to reach a deal mounts before Tuesday.      “The markets are going to be on tenterhooks until we get an  understanding of what the quality of the package is,” said  Kevin Caron, market strategist at Stifel, Nicolaus & Co.

White House senior adviser Valerie Jarrett told Reuters  Insider the Treasury secretary would face very difficult  decisions if the deadline is not met.

“Do we say to our servicemen and women serving abroad that  we’re not going to pay them and support their families? Do we  say to the 70 million, 80 million people who receive Social  Security that we’re not going to pay them?” she said. “Or small  businesses who are vendors of the United States government?”

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