Obama calls new debt talks under China pressure

WASHINGTON—President Barack Obama and his Republican foes came under mounting pressure Thursday to forge a compromise to avert an early August debt default, with China and Wall Street sounding the alarm.

Obama was to host top Republicans and his fellow Democrats for a fifth straight day of White House talks to craft a deal to narrow the yawning US budget deficit while allowing cash-strapped Washington to borrow past August 2.

Economists and finance and business leaders have warned that failure to raise the US debt ceiling above the current $14.3 trillion would send shockwaves through the fragile world economy as it digs out from the 2008 collapse.

With the contentious talks at a standstill, Democratic Senate Majority Leader Harry Reid and Republican Senate Minority Leader Mitch McConnell were trying to craft a complex legislative escape hatch to avert a default, push spending cuts, but forego tax hikes, aides said.

“I have no idea,” if it can pass the House, Republican House Speaker John Boehner told reporters.

And Republicans pressed ahead with calls for a balanced budget amendment to the US Constitution – though it was unlikely to pass the Democratic-held Senate.

With time running short, polarized US politicians drew ever-sharper rebukes from Beijing, the largest US creditor, as well as Wall Street giant JPMorgan Chase and US central bank chief Ben Bernanke.

“We hope the US government adopts responsible policy and measures to ensure the interests of investors,” Chinese foreign ministry spokesman Hong Lei told reporters.

And China’s Dagong credit ratings agency echoed Moody’s ratings agency by putting US sovereign debt on downgrade watch, citing weak US economic growth and the likelihood that fiscal deficits would remain high.

JPMorgan Chase chief Jamie Dimon warned that the “irresponsible” failure to avert a default could be a “catastrophe” with grim consequences “not just for the health of the United States, but the financial health of the world.”

“It’s not possible that someone can say with a straight face that the default of the United States wouldn’t damage the United States and the global economy. Why take that chance? I would never take that chance,” he scolded.

And Bernanke warned key lawmakers in a hearing that a default “would be a self-inflicted wound” that would provoke a major economic crisis and risk a second recession.

US Treasury Secretary Timothy Geithner piled on the pressure after a midday meeting with Senate Democrats, warning “we looked at all available options and we have no way to give Congress more time to solve this problem.”

“The eyes of the country are on us, and the eyes of the world are on us, and we need to make sure we stand together and send a definitive signal,” he said in a brief public appearance, stressing: “We are running out of time.”

Republicans, meanwhile, redoubled their calls for a balanced budget amendment that would force deep cuts in spending while tightening restrictions on Washington’s ability to raise taxes.

McConnell complained that Democrats “want to simply borrow and spend our nation into oblivion” and declared “if the president and Democrats in Congress won’t agree to cut back, let’s force them.”

Republicans embraced calls for fiscal discipline when Obama took office in January 2009, after years of playing down swelling US deficits, approving massive tax cuts, and rejecting calls to pay for the Iraq and Afghanistan wars.

But a new opinion poll by Quinnipiac University found the US public more ready to blame Republicans than Obama by a 48 percent to 34 percent in the event the talks collapse.

The survey found 56 percent percent of Americans disapproved of Obama’s handling of the economy against 38 percent who approved, but also that more trusted him on the issue than trust Republicans, by a 45-38 percent margin.

Obama, who is seeking a second term in the November 2012 elections, garnered a 47 percent overall job approval rating, while 46 percent said they disapprove – putting him below the 50-percent mark deemed crucial for incumbents.

The US hit its debt 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 can only do so to August 2.

In a sign of sluggish progress, Obama floated to top lawmakers that the talks could continue at the Camp David retreat over the weekend, a step swiftly rejected as unnecessary by Republican House Speaker John Boehner.