The House of Representatives was to vote last night on a two-step plan forged by Speaker John Boehner to raise the nation’s $14.3 trillion debt limit even though a majority of senators have vowed to block it and the White House has said it will veto the bill.
With only five days to go before an August 2 deadline when the US Treasury says it will no longer be able to borrow funds to pay its bills, stock markets remained nervous that a fragile economic recovery after the 2008 global financial crisis could be at risk.
European stocks markets ended mixed, weighed down by the debt strains in the United States, after Asian bourses had slumped earlier in the day.
US stock markets however opened higher as an unexpected improvement in jobless claims dispelled gloom about the debt-ceiling debacle in Washington.
Democrats have slammed Boehner’s plan which would raise the debt ceiling for just a few months, saying it would only plunge the world’s economic superpower back into crisis at the start of the 2012 presidential election year.
Boehner admitted his plan was “not perfect,” but he said there were no “gimmicks or smoke screens.”
“For the sake of jobs and for the sake of our country, I am asking the representatives in the House and asking my colleagues in the Senate, let’s pass this bill and end this crisis.”
Republican House Majority Leader Eric Cantor also appealed to Democrats, saying Senate Majority Leader Harry Reid had choices.
“One is to suffer the economic consequences of default, which I hope, which all of us hope, he doesn’t choose,” Cantor said.
But Reid vowed the Boehner proposal, which would shave $915bn off the national deficit over 10 years in return for hiking the debt ceiling by some $900bn, would fail in the Democratic-controlled Senate.
“No Democrat will vote for a short-term Band-Aid that would put our economy at risk and put the nation back in this untenable situation a few short months from now,” he said.
The White House however said it remained “optimistic” US lawmakers would clinch a compromise deal and avoid an unprecedented default.
“We continue to believe and remain optimistic that Congress will come to its senses... and that compromise will be achieved,” said spokesman Jay Carney.
Every elected official in the nation’s capital is “on the hook for the economy... everyone will have to answer to their constituents” if there’s a default, he warned.
White House officials admitted Wednesday they are working on a back-up plan to keep the country running if the US is forced into default.
Washington hit its debt ceiling on May 16 but has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally.
The heads of Wall Street’s top banks, meanwhile, urged President Barack Obama and Congress to reach a deal.
“We strongly urge you to reach an agreement this week,” the chief executives of Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Wells Fargo and other top financial firms wrote in a joint letter.
“The consequences of inaction — for our economy, the already struggling job market, the financial circumstances of American businesses and families, and for America’s global economic leadership — would be very grave.”