US Republican Leaders Search for New Debt Plan

July 29, 2011

Republicans in the U.S. House of Representatives are meeting Friday to once again revise their plan to raise the U.S. borrowing limit and cut government spending, just four days before the government faces a possible default on its financial obligations.

Republican Speaker John Boehner

Republican leaders were forced to delay on a vote Thursday night on a plan crafted by House Speaker John Boehner that would raise the country's $14.3 trillion borrowing limit in exchange for more than $900 billion in spending cuts over the next 10 years. Boehner did not have enough Republican votes to pass the measure, and Democratic leaders said they were unanimously opposed to it.

Some Republicans, including those aligned with the party's ultra-conservative Tea Party faction, opposed Boehner's plan because it did not cut as much government spending as opponents wanted.

If the debt limit is not increased by Tuesday, the U.S. could run out of money to pay all its debts, which would push the government into its first-ever default.

Cause for disagreement

House and Senate Democrats were also strongly opposed to Boehner's plan, because it calls for a second vote later this year to further raise the debt ceiling in exchange for even bigger spending cuts. President Barack Obama had threatened to veto the measure if it is passed by Congress.

Senate Democratic Leader Harry Reid has advocated a rival plan he says would cut spending by $2.5 trillion while extending the borrowing limit through the end of 2012, two months beyond next year's presidential and congressional elections in November.

Without a deal on some kind of plan to raise the limit on borrowing by the deadline, rating agencies would likely to cut the U.S. credit rating, bringing higher interest rates and hurting economic growth.

House Democratic Leader Nancy Pelosi criticized the Republicans' actions, saying the party has "taken us to the brink of economic chaos."

Impact on markets

The stalemate in Washington has had a negative impact on financial markets. Trading on Asian stock exchanges was down Friday in the wake of the House's failure to vote on Boehner's plan. Christine Lagarde, the head of the International Monetary Fund, warned Thursday the value of the U.S. dollar could decline further if the impasse is not resolved.

White House spokesman Jay Carney says President Obama is optimistic a compromise can be reached before next Tuesday's deadline. Carney says a successful compromise would significantly cut spending, set up a way to reform taxes and control spending on social programs, and lift the debt ceiling.