By Olivier Knox
President Barack Obama clashed sharply with a top Republican foe as tense talks to avert a ruinous early August US debt default flared up amid grim warnings about the global consequences.
US central bank chief Ben Bernanke said a default would plunge the economy into “major crisis,” while ratings agency Moody’s warned the United States may lose its sterling triple-A debt rating on rising risks of a short-term default.
Default would “throw shockwaves through the entire global financial system,” and risk sending the fragile US economy into a new recession, the US Federal Reserve chairman told a key congressional committee.
Obama, who was to hold a fifth straight day of negotiations with Republicans and fellow Democrats at 4:15 pm (2015 GMT) Thursday, planned to take stock of the seemingly stalemated process on Friday, a Democratic aide said.
“Friday is not a hard deadline,” the aide told reporters after the contentious discussions wrapped up their fourth day, but “the clock is ticking, they have to get this done.”
Obama needs the Republican-led House of Representatives and Democratic-held Senate to sign off on a deal to close the yawning US deficit while allowing cash-strapped Washington to borrow past an August 2 deadline.
The president, who has pressed for a comprehensive deal to last through his 2012 reelection campaign, was sending Treasury Secretary Tim Geithner to brief Senate Democrats Thursday on the state of the negotiations.
Obama has called for cuts to social safety net programs dear to Democrats while pushing for tax hikes on the rich, a step rejected by Republicans who charge doing so will smother investment and crush already weak job growth.
Tensions boiled over Wednesday, with Obama heatedly rejected Republican House Majority Leader Eric Cantor’s push for a short-term deal anchored on spending cuts, according to key Republican and Democratic aides.
Obama said he would veto such a stopgap measure, warned Cantor “don’t call my bluff,” and declared himself ready to take his case to US voters, agreed aides on both sides, who described the events on condition of anonymity.
Republican aides described Obama as storming out of the meeting in a huff, while their Democratic counterparts said that the presidential rebuke left Cantor chastised and speechless.
“I’ve reached my limit. This may bring my presidency down, but I will not yield on this,” according to a Republican aide.
The president’s message was “enough posturing, he said ‘enough is enough.’ He did not abruptly walk out. He was done with the meeting, everyone was done with the meeting, and he left,” said a Democratic aide.
An aide to Republican House Speaker John Boehner later signalled that the lawmaker was prepared to accept a short-term deal in which spending cuts outweigh the debt limit increase and tax hikes are off the table.
The shift to a stopgap could clear the way for a plan crafted by Republican Senate Minority Mitch McConnell, whose proposal would effectively see the debt limit rise only with Democratic votes and without guaranteeing spending cuts.
Leading Democrats and the White House greeted McConnell’s proposal carefully, but it was unclear whether the plan would rally enough Republican support to pass the divided US Congress.
Republicans have embraced fiscal discipline since Obama took office, after years in which they backed massive tax cuts and rejected paying for wars in Afghanistan and Iraq or a costly increase in a popular health care program.
Obama has called for daily talks to reach a deal to lift the US debt ceiling, now at $14.29 trillion, in the face of a budget deficit expected to hit $1.6 trillion this year.
The US hit the ceiling on May 16 and has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating without impact on government obligations.
But by August 2, the government will have to begin withholding payments to bond holders, civil servants, retirees or government contractors.
The prospect of a default led Moody’s to place US debt on a downgrade watch, citing prospects that talks may not reach a deal in time to “prevent a missed payment of interest or principal on outstanding bonds and notes.”
“Moody’s considers the probability of a default on interest payments to be low but no longer to be de minimis,” the agency said.