US debt crisis
July 30, 2011
The US Senate has postponed its early morning Sunday vote on a plan drafted by the Democratic Party to raise the nation's $14.3 trillion (10 trillion euros) debt ceiling, with the Democrat Senate Majority Leader Harry Reid citing progress in the gridlocked negotiations.
The proposal offered by the Democrats would raise the debt ceiling in three stages by $2.2 trillion over the next decade with equivalent cuts in spending. Republicans had originally threatened to kill the proposal by forcing a supermajority vote of 60 in the 100 seat chamber. The vote will now take place later on Sunday.
"There are negotiations going on at the White House to avert a catastrophic default on the nation's debt," Reid said. "There are many elements to be finalized and there is still a distance to go."
The number two Democrat in the Senate, Dick Durbin, expressed cautious optimism about the prospects for a last minute breakthrough before the deadline expires on August 2 and Washington defaults on its debt.
"We're a long way from any kind of a negotiated agreement, but there is certainly a more positive feeling about reaching an agreement this evening than I've felt in a long time," Durban said.
'Dead on arrival'
On Friday, after days of delays, Republicans in the United States House of Representatives succeeded in passing their doomed bill to raise America's debt ceiling.
But the days of debate were largely considered wasted time, as the bill was already declared dead on arrival, with the Democrat-controlled Senate having already pledged to shoot it down.
With the clock ticking on a Tuesday deadline to raise the country's borrowing limit before the US defaults on its debts and regular payments, House Speaker John Boehner rallied the necessary support from his caucus to eke through the bill calling for massive spending cuts and passed it on to the Senate.
No Democrats voted for it.
Meanwhile on Friday, the US credit rating agency Moody's said it expected this worst-case scenario would be avoided and that it would likely maintain the United States' triple-A credit rating for now. However, Moody's said it would likely give the United States' credit a "negative outlook," keeping the possibility of a downgrade open for the mid-term future.
Appeal for compromise
Earlier on Friday, Obama addressed the nation, urging the American public to let lawmakers know they wanted a bipartisan compromise that can pass Congress.
Obama said in his televised statement that if the United States were to default, losing its AAA credit rating, it would be "because we didn't have an AAA political system to match our AAA credit rating."
As Reid called on Senate Republican leader Mitch McConnell to hammer together a bipartisan compromise, McConnell for his part accused Democrats of trying to round up opposition to the House Republican plan to "keep this crisis alive."
Edging toward default
The US Treasury has said that it will not be able to meet all its obligations and could risk an unprecedented default on loans, triggering a downgrade of US credit ratings, unless Congress passes an increase in the debt limit by Tuesday.
The federal debt limit currently stands at $14.3 trillion.
The Republicans, especially their ultra-conservative Tea Party faction, want to slash federal spending before agreeing to raise the debt ceiling. Boehner's bill would have raised the debt limit by $900 billion in two phases this year.
However, Obama wants a higher cap so that the US can borrow enough funds to keep it running through the end of next year. Obama has argued that another round of negotiations would be impractical ahead of 2012 elections.
A failure by Congress to meet its August 2 deadline could trigger a payment crunch that would rock the global financial system and could send the US into a new recession. The US Treasury says it is already working out an emergency plan for how the government would function if it did miss the deadline.
Author: Spencer Kimball, David Levitz (AFP, dpa, Reuters)
Editor: Mark Rossman