WRAPUP 1-At White House, Obama presses Republicans on debt cap

Wed Jun 1, 2011 11:07am EDT

* Boehner releases letter from economists on debt

* Biden talks likely to resume next week

By Jeff Mason and Andy Sullivan

WASHINGTON, June 1 (Reuters) - President Barack Obama pressed Republicans to back an increase in the U.S. debt limit on Wednesday during a rare meeting aimed at ending a standoff that the White House fears could upset financial markets.

Obama met Republicans from the House of Representatives a day after they defeated their own bill to raise the U.S. debt limit -- a vote staged to strengthen their demand for huge cuts in federal spending. The U.S. deficit is expected to reach $1.4 trillion this year.

The White House argues the United States would face "calamitous" consequences -- including a return to recession -- if Congress does not raise the $14.3 trillion cap on government borrowing by Aug. 2.

The U.S. Treasury said on Wednesday it was still on track to exhaust all borrowing capacity by Aug. 2, risking a possible debt default unless Congress comes to an agreement over spending.

"(Treasury) Secretary (Timothy Geithner) continues to urge Congress to avoid the catastrophic economic and market consequences of a default crisis by raising the statutory debt limit in a timely manner," Mary Miller, assistant secretary for financial markets at Treasury, said in a statement.

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The Treasury Department has been tapping federal employee pensions and other funds to pay the nation's bills since it reached the current debt limit on May 16.

Republicans are skeptical that default is inevitable if government borrowing grinds to a halt and some even question the disaster warnings that Geithner has been issuing all year. They insist that significant spending cuts accompany any deal on the debt ceiling.

Both sides have raised the stakes in recent days.

After Republicans staged Tuesday's vote, House Speaker John Boehner, the top Republican in Congress, released a letter signed by more than 150 economists saying any increase in the debt limit must be matched with spending cuts of equal size.

"An increase in the national debt limit that is not accompanied by significant spending cuts and budget reforms to address our government's spending addiction will harm private-sector job creation in America," the letter said.

TAX INCREASES VS MEDICARE CUTS

In talks led by Vice President Joe Biden, Republicans and Democrats have identified tens of billions of dollars in possible spending cuts.

But they must resolve a dispute over the biggest-ticket items. Democrats say they will not consider cuts to popular health benefits until Republicans consider tax increases.

The Biden talks are likely to resume next week.

The White House is stepping up pressure on Republicans to raise the debt limit.

After Obama meets Republican congressman on Wednesday, Geithner will head to Capitol Hill on Thursday to hold talks with Republican freshmen -- a group of first-term lawmakers who won dozens of seats in last year's congressional elections on promises to cut spending.

Financial markets so far have shrugged off the lack of progress, but the White House has warned that could change as the August deadline approaches.

Douglas Holtz-Eakin, a top economic adviser to former President George W. Bush and 2008 Republican presidential candidate John McCain, said the White House's warnings of calamity sounded like blackmail to lawmakers.

"They need to talk less about what will happen and more about how they're going to get the deal done," he said. (Additional reporting by Caren Bohan and Pedro Nicolaci da Costa)

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