Obama Warns on Debt, Deal Elusive After Talks

President Barack Obama warned Tuesday that elderly Americans could suffer first from a debt default, raising pressure on lawmakers as prospects for a deal to lift the debt ceiling appeared far from reach.

President Barack Obama meets with Congressional Leadership in the Cabinet Room of the White House to discuss the ongoing efforts to find a balanced approach to the debt limit and deficit reduction, Sunday, July 10, 2011. (Official White House Photo by Samantha Appleton)

Debt talks took place in White House on Tuesday. To everyone’s disappointment there were no signs of progress. But the meeting did shed light on two evolving dynamics taking place in the ongoing negotiations: President Barack Obama’s increasing appetite to cut spending in a substantial way, and Republicans sinking under the weight of their hard-line approach to a deal.

Lawmakers return to the White House for another negotiating session Wednesday, working to break a logjam over taxes and spending cuts before August 2. The Treasury says it will run out of money to pay all of the country’s bills. The next debt talks will be on Wednesday at 4 p.m. EDT.

Republicans have rejected raising the debt limit without a deficit-cutting deal. Saying he didn’t see a path to an agreement so long as Democrats insist on revenue increases, Mitch McConnell, the Senate GOP leader, offered a backup plan that would give Obama the option of raising the ceiling while avoiding spending cuts. McConnell’s complicated proposal would also allow Republicans to duck a politically painful debt limit vote.

McConnell’s plan immediately ran into stiff opposition among tea party conservatives and seemed unlikely to pass the House, but neither the White House nor House Speaker John Boehner, R-Ohio, dismissed it out of hand. “I think everybody agrees there needs to be a backup plan if we can’t come to an agreement,” Boehner said in a Fox News Channel interview Tuesday afternoon. “And frankly, I think Mitch has done good work.”

As politicians sparred, business leaders pressed Washington to act swiftly to raise the $14.3 trillion debt ceiling or risk derailing a sputtering economic recovery.

In the interview with CBS television Obama said that checks to recipients of the Social Security retirement program may not go out in early August if he and congressional leaders work out a decision. Obama affirmed in the interview: “I cannot guarantee that those checks go out on August 3rd if we haven’t resolved this issue. There may simply not be the money in the coffers to do it.”

He also said that veterans checks and disability benefits could also be affected without a deal. Obama’s warning that senior citizens, an active voting group, could suffer first if a deal was not reached could give lawmakers a nudge ahead of 2012 elections.

As a reaction to Obama’s comments, House Speaker John Boehner was questioned on Fox News whether Social Security checks would be cut off, asserting that the Treasury can prioritize payments. He answered: “I think it’s way too early to be making some type of veiled threats like that.”

Seniors already punished Democrats last year for including Medicare cuts in their healthcare package and then turned on Republicans in a special New York election this year over a Republican plan to overhaul the government healthcare program for the elderly.

This situation also evokes memories of the debt limit crisis of 1996 when Treasury Secretary Robert Rubin warned he would not be able to send out Social Security pension checks the next month if the ceiling were not raised. The Republican-controlled House immediately voted to allow the government to issue more debt to make those payments.

Treasury officials and economists have warned, that failure to seal a deal by August 2 could globally spook investors, causing interest rates to surge and stock prices to plummet, putting the United States at risk of another recession.

As he laid out his debt-limit backup plan, McConnell said a “real solution” to the debt problem was unlikely while Obama was in office. In the CBS interview Obama chalked that up to “partisan politics,” and White House spokesman Jay Carney said it was important to stay focused on a “unique opportunity to come to agreement on significant, balanced deficit reduction.”

The Democratic official close to the negotiations, who spoke on condition of anonymity, said that after two tense meetings that focused on process, Obama sought to tone down the rancor and refocus the discussion on the substance of the deficit-reduction proposals.

McConnell’s idea would allow only one-third of Congress to raise the debt ceiling. Under the proposal, Congress would reject Obama’s debt-limit request, and Obama would veto the rejection. If Congress failed to muster the two-thirds vote needed to override a veto, the debt limit would effectively be lifted by the amount Obama requested.

Treasury Secretary Timothy Geithner, who has warned of catastrophic consequences if Congress fails to raise the debt ceiling, held firm on Tuesday to vows that the United States would not default. He said:”Failure is not an option.” [via Reuters, Google, Huffington Post]

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