US DEBT CRISIS:US TREASURY bonds and the stock market fell yesterday, reversing the previous day's gains, as optimism regarding a Senate plan to raise the debt ceiling in time for the August 2nd deadline faltered.
At the same time, President Barack Obama summoned Democratic leaders to the White House yesterday afternoon and spoke to Republican leaders by telephone. The centre of gravity in negotiations had shifted from the White House to Capitol Hill after the president suspended talks last Thursday.
Hopes soared for an agreement in the debt ceiling crisis on Tuesday, after the so-called “Gang of Six” plan to cut $3.7 trillion from the US budget deficit was endorsed by Mr Obama.
There are now two plans to avert a partial default on US payments from August 2nd. The plan put forward by the leading Republican in the Senate, Mitch McConnell, and being hammered out with the Senate Democratic majority leader Harry Reid, is described by Mr Obama as the “bare minimum”.
It would allow the president to unilaterally raise the debt ceiling just enough to keep the US treasury ticking over.
The more ambitious “Gang of Six” plan was negotiated by three Democratic and three Republican senators over the past seven months .
The McConnell-Reid plan might be a prelude to the “Gang of Six” plan, which is now only a five-page outline and would require weeks of talks in congressional committees to detail hundreds of billions of dollars in cuts from Medicare, defence, education, labour programmes and agriculture.
On Tuesday, House Republicans passed a symbolic “cut, cap and balance” resolution that would allow the debt ceiling to rise by $2.4 trillion if Congress made balancing the budget a requirement of the US constitution. But the Democratic-controlled Senate will not vote on the Bill, and Mr Obama said he would veto it.
House Republicans poured more cold water on hopes of resolving the crisis yesterday when 70 representatives signed a letter urging the House Speaker John Boehner not to allow a House vote on Senator McConnell’s proposal.
The 10-year yield on US treasury bonds then rose 4 basis points to 2.92 per cent and the stock market fell 0.1 per cent, erasing the gains fanned by Tuesday’s few hours of optimism.
A high-ranking Republican aide on Capitol Hill told Politico.com that Mr Obama’s endorsement of the “Gang of Six” plan “killed any chance of its success by embracing it, by hailing the fact that it increases taxes and by saying it mirrors his own plan.
In a Washington Post-ABC News poll published yesterday, 77 per cent of respondents said Republican leaders were “not willing enough to compromise” on the deficit issue, while 58 per cent said the same of Mr Obama.
