Over the weekend, US congressional negotiators focused their attention on Speaker of the House – John Boehner’s (R-Ohio) proposal to raise the debt limit in two stages. Their goal was to make it more acceptable to Democrats and President Obama. But after a 6 p.m. meeting at the White House, Obama, Senate Majority Leader Harry M. Reid (D-Nev.) and House Minority Leader Nancy Pelosi (D-Calif.) rejected the emerging compromise.
“Tonight, talks broke down over Republicans’ continued insistence on a short-term raise of the debt ceiling, which is something that President Obama, Leader Pelosi and I have been clear we would not support,” Reid said in a written statement. “Speaker Boehner’s plan, no matter how he tries to dress it up, is simply a short-term plan, and is therefore a non-starter in the Senate and with the President.”
A deal will be agreed because the alternative is “unthinkable”, treasury secretary Timothy Geithner argued on CNN on Sunday night. “For us to get this done by 2 August, which is critical, they need to start this process in the House on Monday night so they can demonstrate to the world we’re going to be on a path to get this done … We cannot leave the threat of default hanging over the American economy for a longer period.”
Mohamed El-Erian, chief executive of bond trading giant Pimco, the world’s biggest bond trader, lambasted Washington politicians for their failure to reach a compromise to raise the US’s debt ceiling. With time rapidly running out, El-Erian believes the dispute – carried out in full view of an anxious world – has left investors more wary about America’s prospects.
As the Aug. 2 deadline for lifting the debt ceiling nears, warnings are growing that the nation’s economy may be damaged by the protracted stalemate. A downgrade of the nation’s credit rating, which could raise the cost of borrowing, seemed more likely, whether an agreement is reached before Aug. 2.