US debt crisis: Deal ‘close’ to avoid default

AFP

WASHINGTON, US, AUG 01 - With barely two days to act, US President Barack Obama and top lawmakers on Sunday closed in on an ambitious deal to avert a disastrous debt default sure to sow chaos in the fragile world economy.

“We are very close,” Republican Senate Minority Leader Mitch McConnell told CNN amid frantic beat-the-clock talks among the White House, its Democratic allies, and its Republican foes.

Senior Obama adviser David Plouffe indicated on NBC television there was an emerging consensus but no solid agreement yet to raise the $14.3 trillion US debt ceiling ahead of a midnight Tuesday (0400 GMT Wednesday) deadline.

“We don’t have a deal. The hours are ticking,” Plouffe said on NBC, stressing: “We have to get this solved. Today is obviously a critical day.”

The US economy hit its debt limit on May 16 and has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally—but can only do so through midnight Tuesday.

Business and finance leaders have warned default would send crippling aftershocks through the fragile US economy, still wrestling with stubbornly high unemployment of 9.2 percent in the wake of the 2008 global meltdown.

Without a deal, the US government would have to cut an estimated 40 cents out of every dollar it spends, forcing grim choices between defaulting or cutting back programs like those that help the poor, disabled and elderly.

Any compromise would still need to clear the divided Democratic-led Senate and Republican-held House of Representatives, where conservatives close to the “Tea Party” movement have called for draconian belt-tightening. Aides familiar with the fast-moving negotiations said the two sides are close to an agreement to raise the $14.3 trillion US debt ceiling by about $2.8 trillion, roughly what Obama asked for, in two stages.

“What’s we’re looking at is a $3 trillion package,” McConnell told CNN.