Rancor builds as debt negotiations continue

\WASHINGTON - The relentless partisan rancor over raising the U.S. debt ceiling - essential to avoiding an American default on its skyrocketing debt - grew even nastier Thursday with angry lawmakers attacking one another and President Barack Obama. Wall Street warned of catastrophe if the United States can't pay its bills.

After Obama walked out of White House talks a day earlier, saying "enough is enough" and that he was done listening to Republican ideological talking points, the political posturing reached new levels. Top Senate Democrat Harry Reid called the 2nd-ranking House Republican "childish" and declared that Rep. Eric Cantor shouldn't even be part of the talks.

Not long after that, Senate Republican Leader Mitch McConnell stood on the floor of the upper house to serve notice that the debt problem belonged squarely in Obama's lap.

McConnell said: "Don't expect any more cover from Republicans on it than you got on health care. None." No Republican voted for Obama's health care overhaul last year.

At issue is Washington's ability to meet its obligations both at home and abroad.

The United States hit its current $14.3 trillion debt ceiling in May and the Obama administration says the government will default on its obligations if the debt limit is not increased by Aug. 2.

For a new debt ceiling to last to the end of 2012 would require raising it by about $2.4 trillion. The cap on U.S. indebtedness has been raised as a matter of routine in the past.

But this time Republicans, in control of the House of Representatives in part because of the support of small-government, low-tax tea party activists, say they will not vote to raise the limit if Obama doesn't agree to at least an equal amount of deficit reductions over 10 years.

And the standoff this time around has Wall Street very worried.

"No one can tell me with certainty that a U.S. default wouldn't cause catastrophe and wouldn't severely damage the U.S. or global economy," Jamie Dimon, CEO of JPMorgan Chase & Co., told reporters Thursday. "And it would be irresponsible to take that chance."

Federal Reserve Chairman Ben Bernanke, addressing lawmakers, warned Wednesday that not increasing the nation's debt ceiling and allowing the nation to default on its debt would send "shock waves through the entire financial system."

Moody's Investors Service said Wednesday it will review the government's credit rating, noting there is a small but rising risk that the government will default on its debt. If Moody's were to lower the ratings, the consequences would ripple through the economy, pushing up rates for mortgages, car loans and other debts. A Chinese rating agency, Dagong Global Credit Rating Co., also warned of a possible downgrade.

All of that hung like a storm cloud above the long and desultory negotiations scheduled to resume at the White House on Thursday afternoon. Obama has demanded that budget negotiators find common ground by week's end

In the cauldron of the White House Cabinet Room, Obama and top lawmakers bargained for nearly two hours Wednesday on spending cuts. Obama curtly ended the session when Cantor urged the president to accept a short, months-long increase in debt instead of one that would last through next year's presidential election.

"Enough is enough. ... I'll see you all tomorrow," Obama said, rising from the negotiating table and leaving the room, according to several officials familiar with the session.

Reid, the Senate Democratic leader, said that while other top Republicans were willing to negotiate in good faith, Cantor "has shown he shouldn't even be at the table."

Cantor, speaking to reporters after Wednesday's meeting broke up, said the White House had been lowering the amount of spending cuts it would put on the table, offering less than $1.4 trillion over 10 years, mostly in domestic and defense spending outside of the major benefits programs Medicare, Medicaid and Social Security.

The White House argued that the total was closer to $1.7 trillion over 10 years when counting about $240 billion in reduced interest payments from the lowered debt.

Earlier, in comments to a small group of reporters before the White House session, House Speaker John Boehner complained that negotiating with the White House the last couple months has been difficult.

Democratic officials have portrayed the White House as the more flexible party in the negotiations, willing to cut cherished programs like Medicare, Medicaid and Social Security, provided Republicans agree to some increases in revenue. Thursday's meeting was to focus on spending cuts in the two health care programs and on new tax revenue. So far, Republicans have stood firm against any increase in revenue from taxes.

Sen Lindsey Graham, R-S.C., on Wednesday lamented his party's having made such "a big deal" about its opposition to raising the debt ceiling, and conceded that now Republicans were struggling to walk back their statements.

"Our problem is we made a big deal about this for three months," said Graham of the debt limit debate. "How many Republicans have been on TV saying, 'I'm not going to raise the debt limit'? You know, Mitch [McConnell] says, 'I'm not going to raise the debt limit unless we talk about Medicare.' And I've said I'm not going to raise the debt limit until we do something about spending and entitlements.'"

"We've got nobody to blame but ourselves," he added.

Video: Obama on debt negotiations
Schumer, Dems say Cantor's wrong: a large debt deal could still pass House

With talks reaching a critical stage without real breakthroughs, some Republican and Democratic lawmakers were looking at a plan proposed by McConnell that would give Obama new powers to overcome Republican opposition to raise the debt ceiling.

The proposal would place the burden on Obama to win debt ceiling increases as many as three times in the coming months or years.

That assumes he could overcome congressional no votes, a threshold Obama could manage without a single Republican vote and without massive spending cuts.

Conservatives promptly criticized the plan for giving up the leverage to reduce deficits. But the plan raised the prospect of combining it with some of the spending cuts already identified by the White House in order to win support from conservatives in the House.

Despite McConnell's assertions that the debt problem belongs to Obama, fresh polling from Quinnipiac University suggested voters would be more apt to hold Republicans responsible than Obama, by 48 percent to 34 percent, if the debt limit is not raised. The same survey showed voters were about evenly split on whether they're more concerned about raising the limit and increasing government debt, or seeing the government go into default and damaging the economy.

"The American people aren't very happy about their leaders, but President Barack Obama is viewed as the best of the worst, especially when it comes to the economy," said Peter Brown, assistant director of Quinnipiac's Polling Institute.

That helps explain why McConnell put forward a plan that would give Obama new powers to overcome Republican opposition to raising the debt ceiling.