The U.S. is drifting closer to a credit rating downgrade and tech default as Obama’s Democrats and their Republican rivals work on competing plans to cut spending and raise the debt ceiling.
Approval of a plan by House of Representatives Speaker John Boehner would break the inertia in Washington over a debt crisis that has spooked markets and raised the prospect that the government of the world’s largest economy will run out of money to pay its bills in less than a week.
“I can’t do this job unless you’re behind me,” House Speaker John Boehner, R-Ohio, bluntly told his fractious rank and file as he pleaded for the bill, which was hastily rewritten to show deeper spending cuts than 24 hours earlier.
President Barack Obama has threatened to veto the bill and a majority of the Democratic-controlled Senate has vowed to vote against it.
A defeat of the bill could deepen the crisis, swinging the momentum toward a rival Democratic plan in the Senate but leaving no clear way to overcome entrenched opposition from fiscally conservative Tea Party Republicans in the House.
Treasury Secretary Timothy Geithner and a small team of his aides have worked on contingency plans should Congress fail to raise the U.S. borrowing limit by an August 2 deadline.
Officials said on Wednesday the Treasury will lay out a plan in the next few days about how the government will operate if it appears Congress may miss the deadline.
The White House has warned of “catastrophic” consequences if a deal is not reached by August 2, rejecting the idea that Obama could invoke an obscure constitutional clause to raise the debt limit.
Senate Majority Leader Harry Reid, D-Nev., has proposed his own debt-ceiling plan, but right now neither proposal seems to have the necessary votes in Congress.
The resulting stalemate could have wide-ranging repercussions for the nation’s shaky economy, as well as global financial markets.
“Magic things can happen here in Congress in a very short period of time under the right circumstances,” Harry Reid said.
Several House Democrats planned to hold a news conference on Thursday to urge Obama to take that option if necessary.
“The only option here is for Congress to do its job,” said senior White House adviser David Plouffe on the PBS television show NewsHour. “We’ve run out of excuses and we’re running out of time.”
Treasury could consider selling off some of the government’s assets, including holdings of gold and mortgage-backed securities.
U.S. officials say this option has major drawbacks because it would show the world the United States is having difficulty honoring its obligations. These officials say the government might also have to accept fire-sale prices for the assets and that the sales likely would not buy much time.
Some legal scholars see a possible trump card for Obama in a provision of the Constitution that says the United States’ public debt “shall not be questioned.”
Other legal experts believe Obama does not have the authority to ignore the cap on borrowing set by Congress. Obama administration officials have said they do not see the 14th Amendment clause as a solution to the impasse.
“I have talked to my lawyers,” Obama said on Friday when asked about the option at a town hall forum. “They are not persuaded that that is a winning argument.”
Boehner’s two-step plan contains a crucial sticking point — it would only extend the Treasury’s borrowing authority by a few months, something Obama has said is unacceptable.
Democrat Obama is facing a major test of his leadership over the debt crisis as he seeks to remove the debt-ceiling issue as a threat to the weak economy ahead of his bid for re-election in November 2012.
Boehner’s bill needs 217 votes and its chances appear too close to call even after he bluntly told fellow Republicans to “get your ass in line” behind his plan. [via Reuters]