US Mired in Debt Limit Deadlock Amid Anemic Economic Growth


Original source: Xinhua

The US House of Representatives passed a debt ceiling plan in a vote on Friday evening, but the bill was quickly killed in the Senate, which further dampened hope for a bipartisan deal before the Aug. 2 deadline.

The GOP managed to send the measure put forth by House Speaker John Boehner to the Senate floor, despite earlier veto warning from the White House and strong opposition in the Senate.

Under the newly modified two-step plan outlined by Boehner, a Republican, the Congress would immediately raise the federal government's borrowing capacity by 900 billion US dollars extending to early next year and cut spending by 917 billion dollars over a decade.

According to the legislation rewritten overnight, the second tranche of debt limit increase next year would be contingent on Congress approving a balanced budget amendment to the Constitution and sending it to the states for ratification.

To amend the Constitution or default is a "highly dangerous game" to play, White House spokesman Jay Carney said Friday.

The Democrat-controlled Senate scuttled the Boehner bill two hours after the House passage.

The House bill is "flawed", Senate Democratic Leader Harry Reid said Friday, adding that the US economy could not bear the kind of uncertainty any longer.

"The House of Representatives is still trying to pass a bill that a majority of Republicans and Democrats in the Senate have already said they won't vote for," US President Barack Obama said hours before the House voting.

Any debt ceiling compromise plan to avert an unprecedented debt default should be bipartisan in order to win support from both Democrats and Republicans, Obama said during a hastily arranged White House press conference Friday morning.

The deadlock might cause the United States to lose its top-notch credit rating, Obama warned.

A lower credit rating would result in a "tax increase" on Americans in the form of higher interest rates on their mortgages, their car loans and their credit cards, Obama said.

"Now that yet another political exercise is behind us, with time dwindling, leaders need to start working together immediately to reach a compromise that avoids default and lays the basis for balanced deficit reduction," the White House said in a statement after the House voting.

"Senator Reid's proposal is a basis for that compromise. It not only achieves more deficit reduction than the bill passed in the House today and puts a process in place to achieve even more savings, it also removes the uncertainty surrounding the risk of default," noted the statement.

The Reid plan will provide the US federal government borrowing authority extended long enough to reach the end of 2012 when the presidential election is over and aimed at cutting 2.4 trillion dollars of government spending over a decade.

The federal government's borrowing limit, currently at 14.29 trillion dollars, was reached on May 16. The Treasury Department said the nation would begin to default on its debts unless the Congress agreed to lift the limit by Aug. 2.

With time running short, Beltway policymakers have not found a way to lift the nation out of the current mess, despite the sluggish economic growth in the first half of this year.

The US economy slowed to an annualized growth rate of 1.3 percent during the second quarter of 2011, far short of market expectations of around 1.7 percent, fresh evidence to a softer economy, the Commerce Department reported Friday.

The department also sharply revised the January-March figures from a growth of 1.9 percent to just 0.4 percent, the weakest since the recession ended two years ago, as flat consumer spending and spending cuts from state and local governments undermined the economic recovery.

"On a day when we've been reminded how fragile the economy already is, this is one burden we can lift ourselves. We can end it with a simple vote, a vote that Democrats and Republicans have been taking for decades, a vote that the leaders in Congress have taken for decades," Obama urged at the press conference.

Photo by AFL-CIO/cc by 2.0/Flickr

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