July 20, 2011 / 5:05 AM / 8 years ago

WRAPUP 7-Obama open to short-term debt fix if big deal agreed

* New stance reflects urgency to avoid default

* Lawmakers seek to combine McConnell-Gang of Six plans

* Obama in separate meetings with Republicans, Democrats

* Fed making contingency plans in case of default (Recasts, adds start of meeting with Republicans)

By Jeff Mason and Andy Sullivan

WASHINGTON, July 20 (Reuters) - The White House signaled on Wednesday it could support a short-term increase in the U.S. borrowing limit for “a few days” if lawmakers agreed to a broad deficit reduction deal but needed more time to pass it.

The move, a shift from President Barack Obama’s previous position, reflects the growing political reality that time is short for Congress to pass a massive deficit-cutting deal before the United States runs out of money on Aug. 2.

A new proposal for long-term deficit reduction from a group of senators known as the Gang of Six has revived hope that a broad agreement on spending cuts can be reached to avoid a looming default and alleviate pressure on America’s triple-A credit rating.

Obama had repeatedly opposed a short-term extension of the $14.3 trillion debt limit as a solution to the dilemma, and the White House reiterated that stance on Wednesday — but with a caveat.

White House spokesman Jay Carney said in a written statement that the president would consider supporting a short-term fix if a deal had been reached “and we needed a very short-term extension (like a few days) to allow a bit of extra time for a bill to work its way through the legislative process.”

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The United States will run out of money to pay its bills if Congress does not increase the debt limit by Aug. 2. Failure to act could plunge the United States back into recession and send shockwaves through global financial markets.

The Federal Reserve has been actively preparing for the possibility of default, ironing out what to do if the world’s biggest economy runs out of cash in two weeks, Philadelphia Federal Reserve Bank President Charles Plosser told Reuters. [ID:nN9E7HG01X]

Plosser said his “gut feeling” was that Obama and Congress would come to an agreement and avert a default.

Republicans say they will not support increasing the debt limit without deep spending cuts. Deficit talks have hit an impasse over tax increases, which Republicans still rule out.

Obama met with Democratic congressional leaders at the White House in the afternoon. He met with John Boehner and Eric Cantor, the No. 1 and No. 2 Republicans in the House of Representatives, for about 1-1/2 hours later in the day. (Additional reporting by Richard Cowan, Thomas Ferraro and Alister Bull in Washington, Kristina Cooke and Tim Ahmann and Emily Flitter in New York; Writing by Deborah Charles and Jeff Mason; Editing by Eric Beech)

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