* Moody's concerned about polarization in debt talks
* Some Republicans frustrated after Geithner meeting
* Wall Street expects last-minute deal
(Adds Geithner meeting, quotes, details)
By Daniel Bases and Donna Smith
NEW YORK/WASHINGTON, June 2 Ratings agency
Moody's warned on Thursday it would consider cutting the United
States' coveted top-notch credit rating if the White House and
Congress do not make progress by mid-July in talks to raise the
U.S. debt limit.
Treasury Secretary Timothy Geithner, seeking to convince
Congress to increase his borrowing authority and prevent a
government default, went to Capitol Hill to press his case in a
45-minute meeting with first-term lawmakers.
"I am confident that two things are going to happen this
summer," Geithner told reporters after the meeting. "One is
that we are going to avoid a default crisis and we are going to
reach agreement on a long-term fiscal plan."
The meeting occurred just hours after Moody's Investors
warned that slow-moving deficit talks led by Vice President Joe
Biden, hindered by entrenched positions on both sides, had
increased the odds of a short-lived default by Washington.
Moody's warning increases pressure on President Barack
Obama and House of Representatives Speaker John Boehner, the
top Republican in the U.S. Congress, to strike a deal soon or
risk upsetting global financial markets.
Geithner has predicted a financial catastrophe if Congress
fails to increase the current $14.3 trillion borrowing cap by
Aug. 2, when his department will exhaust the extraordinary cash
management measures it has been using since reaching the debt
limit on May 16.
Full coverage of budget, debt issues [ID:nUSBUDGET]
Text of Moody's statement [ID:nN02282880]
Q+A on U.S. debt talks [ID:nN31300874]
Timeline of U.S. debt debate [ID:nN27148818]
US Treasury tools to stave off default [ID:nN15237299]
Geithner said he had a "good meeting" with the first-term
lawmakers, but some of the skeptical Republicans, who oppose
increasing the debt limit without implementing deep spending
cuts, were less pleased.
"It is frustrating when the secretary talks in circles and
that is very unfortunate," said Representative Stephen Lee
Fincher. "We are all big boys and girls. We need a framework
put forward and we are not seeing that out of this
administration, only seeing talk, talk and talk."
Representative Kristi Noem, a favorite of the fiscally
conservative Tea Party movement, said the freshmen Republicans
made it clear to Geithner that they would not "give this
administration a blank check to spend even more."
"Secretary Geithner doesn't get it," said Noem, one of the
"mama grizzlies" touted by ex-Alaska Governor Sarah Palin.
But a Treasury official characterized the talks with
lawmakers as friendly and constructive.
Saying the risk of "continuing stalemate" between the two
sides had grown, Moody's urged progress on deficit reduction
soon before politics takes over in the run-up to the November
2012 presidential election.
"We think this is an opportunity," Steven Hess, sovereign
credit analyst for Moody's, told Reuters. "If this opportunity
goes by without them realizing a serious long-term debt/deficit
reduction program, then we think that until the presidential
election, the chances of such an agreement are really much
Mary Miller, a top Treasury official, said the Moody's
statement underscored the need for Congress to move quickly to
make sure the United States could meet all its debt obligations
while working to reach a long-term fiscal deal.
A U.S. default would roil global financial markets, but few
investors are rattled just yet. Wall Street, in large part,
expects the debt and deficit negotiations to go down to the
wire, as did talks over tax cuts and the 2011 budget.
"We've been through this political grandstanding before,"
said Jim Kochan, chief fixed-income strategist at Wells Fargo
"We always go right down to the day on debt ceiling targets
being raised. No congressman and no president wants to be
responsible for Social Security payments not going out. This is
a minimal risk. We've seen this so many times."
Obama has tasked Biden to lead negotiations with Republican
and Democratic lawmakers to find a deficit-reduction deal that
would be palatable to Congress and pave the way for the debt
limit to be raised. Their talks are due to resume on June 9.
But Republicans refuse to consider tax increases as part of
a deal, while Democrats are opposed to Republican proposals to
scale back the popular government-run Medicare healthcare
program for future retirees.
Republicans seized on the announcement by Moody's, which
comes two months after Standard & Poor's revised down its
credit outlook on the U.S. rating, as proof of the need to make
some sharp spending cuts.
"This report makes clear that if we let this opportunity
pass without real deficit reduction, America's financial
standing will be at risk," said Boehner. "A credible agreement
means the spending cuts must exceed the debt limit increase.
Senator Charles Schumer, a top Democrat, said a compromise
that prevents a "catastrophic default on our obligations and
significantly reduces the debt is within reach."
(Additional reporting by Rachelle Younglai, Alister Bull and
Thomas Ferraro; Writing by Deborah Charles; Editing by Ross
Colvin, David Lawder and Eric Walsh)