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Lawmakers close to deal to avoid default

By Reuters
Sunday, July 31, 2011 17:56 EDT
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WASHINGTON (Reuters) – Lawmakers were close to a last-ditch $3 trillion deal on Sunday to raise the U.S. borrowing limit and assure jittery financial markets that the United States will avoid a potentially catastrophic default.

The tantalizing possibility of an agreement raised hopes that a weeks-long partisan brawl over cutting the U.S. deficit might be staggering to a cliffhanger close. There are just two days left to lift the debt ceiling, which caps how much money the United States can borrow to pay all of its bills.

“We’re really, really close to an agreement,” said Mitch McConnell, the Senate Republican leader who has been in negotiations with Vice President Joe Biden on a plan to reduce the deficit and permit a vote to raise the debt ceiling.

Signaling a bipartisan agreement could be imminent, an aide said Senate Majority Leader Harry Reid would support the emerging deal as long as his fellow Democrats back it as well. Reid said he hoped to hold a Senate vote on Sunday night.

House of Representatives Democratic Leader Nancy Pelosi, a leading liberal whose consent is considered critical to passage of any compromise because it would likely draw limited Republican votes, had yet to stake out her position.

Congressional approval could come within hours of a final deal, but leaders will first have to determine whether they have the votes to pass it though the House and the Senate.

Democrats were skeptical of the deal that Republicans said would cut deficits by up to $3 trillion over a decade. It would force Democrats to stomach deep spending cuts without the accompanying tax increases they wanted.

In a sign Democratic leaders may lose the support of their most liberal members, Representative Raul Grijalva said he could not back the plan. He is the head of the 74-member Congressional Progressive Caucus.

“Today we, and everyone we have worked to speak for and fight for, were thrown under the bus,” he said.

David Plouffe, a senior adviser to President Barack Obama, said there was general agreement on a plan that would cut the U.S. deficit over 10 years in two stages: roughly $1 trillion up front and the rest based on the recommendation of a joint bipartisan committee.

The proposed $3 trillion in savings may calm financial markets but it appears insufficient to avoid a downgrade of America’s top-notch AAA rating by Standard & Poor’s. The agency last week reiterated that $4 trillion in deficit-reduction measures would be “a good downpayment” to show that Washington was putting the country’s finances in order.

“It’s really unclear whether a downgrade will be avoided as a result of this deal,” said Kathy Lien, director of currency research at GFT, New York.

British and Japanese officials warned of disastrous consequences for the global economy if the last-ditch talks among lawmakers in Washington failed to agree on raising the U.S. borrowing limit and averting a debt default.

Governments across the world fear that because of the key role of the U.S. dollar in global banking and trading systems, there could be severe instability when Asian financial markets reopen in several hours if a debt deal is not in view by then.

(Additional reporting by Lesley Wroughton, Donna Smith, Andy Sullivan, Laura MacInnis, Margaret Chadbourn, Thomas Ferraro, Jackie Frank, Andrew Seaman and David Morgan in Washington, and Walter Brandimarte and Wanfeng Zhou in New York; Writing by Steve Holland; Editing by Ross Colvin and Anthony Boadle)

Source: Reuters US Online Report Top News

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