July 29, 2011 / 3:05 AM / 9 years ago

WRAPUP 11-Republican rebels force new delay in US debt crisis

* House puts off vote on Republican measure

* Boehner plan faces opposition from party rebels

* Tuesday deadline looms to avert risk of U.S. default

* Obama administration: Americans want compromise

* House Republicans to meet on Friday morning (Adds Chinese comments)

By Andy Sullivan and Richard Cowan

WASHINGTON, July 28 (Reuters) - Urgent efforts to avoid an unprecedented U.S. debt default suffered a new blow on Thursday when some fiscally hardline Republicans blocked a budget deficit plan proposed by their own congressional leaders.

After hours of trying to get enough votes, the Republicans who control the House of Representatives put off action for the night and scheduled an emergency meeting for Friday morning.

The Republican infighting further delays any compromise with Democrats to stop the countdown toward Tuesday when the government says it will run out of money to pay all its bills.

Lawmakers must lift the government’s $14.3 trillion borrowing limit by Aug. 2 or risk a devastating default and downgrade of the top-notch credit rating that helps make U.S. debt a pillar of the global financial system.

There was speculation House Speaker John Boehner, the top Republican in Congress, may revise his plan to attract more votes from rebels who want bigger cuts in spending than the roughly $900 billion over 10 years he has proposed.

“Republicans have taken us to the brink of economic chaos,” House Democratic Leader Nancy Pelosi said. “The delay must end now so we can focus on the American people’s top priority: creating jobs and growing the economy.”

Even if it passes, the Boehner bill is certain to be killed in the Democratic-controlled Senate but could still feature in any possible compromise. Boehner’s difficulties in securing votes weakens his bargaining position, Democrats said.

Investors, unnerved by the risk of a U.S. default or downgrade, are watching anxiously.

The dollar sank to a fresh four-month low against the yen and Asian stocks struggled after the announcement that the House would not vote on Thursday evening. [MKTS/GLOB]

In U.S. trading earlier on Thursday, the stock market’s broad S&P 500 index fell for a fourth day and interest rates soared on some Treasury bills that mature in August.

In a strongly worded commentary, China’s state-run news agency Xinhua criticised U.S. lawmakers for flirting with a disastrous default, saying the world’s largest economy has been “kidnapped” by “dangerously irresponsible” politics.

No policymakers in China, the largest foreign creditor to the United States, have commented on the crisis but Xinhua said “the ugliest part of the saga is that the well-being of many other countries is also in the impact zone.” [ID:nL3E7IT0JC]

International Monetary Fund chief Christine Lagarde warned of the risks if Congress fails to act.

“One of the consequences could be a decline of the dollar as a reserve currency and a dent in people’s confidence in the dollar,” Lagarde told PBS NewsHour in an interview.

U.S. financial executives added their voices to calls from the business community for Congress to strike a deal.


Full coverage of U.S. budget and debt [ID:nUSBUDGET]

SCENARIOS-Obama options if no debt deal [ID:nN1E76O0QG]

ANALYSIS-Debt crisis big test for Boehner[ID:nN1E76Q1PW]

BREAKINGVIEWS-Investors too complacent [ID:nN1E76Q0EQ]

Graphics package r.reuters.com/nud82s



Boehner has been grappling with lawmakers such as Mick Mulvaney, a supporter of the Tea Party movement that represents a new force on the Republican right flank.

“I’m still a no,” Mulvaney said as he left Boehner’s office to pray at the congressional chapel before the vote was canceled for the night.

Republicans changed procedural rules to allow them to bring up the bill for a vote quickly on Friday.

Many Americans are outraged that Washington cannot reach a deal after many weeks of polarized and acrimonious debate.

There were increasing calls by some Democrats for President Barack Obama to raise the debt ceiling on his own by invoking the 14th Amendment of the Constitution — a clause dating from the Civil War era of the 1860s that the U.S. public debt “shall not be questioned.”

The White House has resisted taking such a step.

Some wavering Republican House members were insisting on tying a debt limit increase to passage of a balanced budget amendment to the Constitution, according to a Republican aide.

The Senate rejected such an approach last week.

Even if a deal is reached to lift the debt ceiling, a downgrade of the U.S. credit rating is likely unless a big dent is made in the deficit. A downgrade would raise borrowing costs, hurt an already weak economy and rattle global markets.

Once the House acts one way or the other, action will move to the Democratic-controlled Senate. Boehner’s plan is doomed in the Senate, where Democratic Leader Harry Reid is pushing his own deficit reduction plan.

But after both chambers have their say, frantic talks are expected this weekend to seek a compromise to permit a vote on raising the debt ceiling and staving off a default on Tuesday.

“I think there will be a whole new stage of the Senate and House having to come together to avoid August 2nd as being a day that has never happened in the U.S.,” White House chief of staff William Daley told CNN.

Republican leaders were engaged in arm-twisting as they tried to secure the 217 votes needed to pass the Boehner bill in the House and avoid a humiliating defeat.

A stream of lawmakers who had decided to vote against the plan came and went from Boehner’s office. Whatever was said did not seem to be changing many minds.

Republican Representatives Louie Gohmert and Joe Walsh said they would still vote against the bill. Trent Franks and Jeff Flake would not say where they stood.


Boehner’s plan for about $900 billion in cuts is twinned with a short-term debt ceiling increase. Lawmakers would have to come up with further spending cuts to raise the debt ceiling again in several months — just as the campaign heats up for congressional and presidential elections in November 2012.

Reid’s plan, backed by Obama, would cut $2.2 trillion from the deficit over 10 years without raising taxes and extend the debt ceiling through next year.

At the White House, Obama and his team also worked late into the evening to avert a default that would scar his presidency, no matter who was at fault, as he prepares to ask Americans for a new four-year term in 2012.

Despite the gridlock, Congress could kick into higher gear as pressure to reach a deal mounts before Tuesday.

“The markets are going to be on tenterhooks until we get an understanding of what the quality of the package is,” said Kevin Caron, market strategist at Stifel, Nicolaus & Co.

White House senior adviser Valerie Jarrett told Reuters Insider the Treasury secretary would face very difficult decisions if the deadline is not met.

“Do we say to our servicemen and women serving abroad that we’re not going to pay them and support their families? Do we say to the 70 million, 80 million people who receive Social Security that we’re not going to pay them?” she said. “Or small businesses who are vendors of the United States government?” (Additional reporting by Dave Clarke, JoAnne Allen, Rachelle Younglai, Deborah Charles, Alister Bull, Caren Bohan, Laura MacInnis, Tabassum Zakaria and Lily Kuo in Washington, Ashley Lau in New York and Anirban Nag in London; Writing by Steve Holland and Stuart Grudgings; Editing by John O’Callaghan)

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