Dems, Republicans stubbornly hold debt positions

WASHINGTON (AP) - With global markets on edge, congressional
Democrats and Republicans struggled through another day of difficult
talks but failed to agree on cutting U.S. spending and raising the debt
limit - a necessary measure to prevent an unprecedented Aug. 2 default. Political
leaders had hoped to strike a deal Sunday to reassure investors around
the world that the nasty partisan fight in Washington was nearing an
end, lifting fears that the United States would be unable to cover its
debts when the current borrowing limit expires a week from Tuesday. The
stakes are high. Major global credit ratings agencies have threatened
to downgrade the U.S. government's triple-A credit rating unless there
are assurances that the United States will not go into default for the
first time in its history. A default could mean that the U.S. government
could not pay all its bills starting next month, including interest and
principal on Treasury bonds, Social Security checks to retirees, and
payments to government contractors. Lowering the U.S. credit
standing likely would raise the cost of U.S. government borrowing.
Americans seeking home mortgage or car loans would see interest rates
climb, as would people with outstanding credit card balances. President Barack Obama
says that effectively amounts to a tax increase on Americans. Many
economists think default could push the U.S. economy back into recession
or worse, while causing chaos in the global economy. Both Republicans and Democrats in Congress and Obama have sought to position themselves to avoid possible blame. The
biggest obstacle to a long-term debt limit extension is coming from the
Republican-controlled House, which includes dozens of new Republican
members elected last November with strong support from the
small-government, low-tax tea party movement. Nearly all House
Republicans have signed a public pledge not to raise taxes for any
reason and could face primary election challenges in the run-up to the
2012 vote. They fear the wrath of voters in conservative districts for
failing to live up to the promise on taxes. Members of the House must
face the voters every two years. Obama also will run for
re-election in 2012 and does not want to see his campaign for a second
White House term bogged down in another nasty political fight over
increasing the country's borrowing limit. Obama has insisted on
an increase in tax revenues, mainly through closing loopholes and
letting cuts for wealthy Americans expire, to cover some proposed
spending cuts in the U.S. social safety net, programs like the Social
Security pension plan and Medicare health insurance coverage for people
over age 65. Republicans steadfastly refuse to accept higher taxes. Under
the leadership of an embattled Speaker Rep. John Boehner, Republicans
labored over a plan that would boost the debt limit immediately by
roughly $1 trillion - about enough to last through this year - while
locking in slightly more in spending cuts. Another package combining
trillions more in savings and another extension of the debt limit would
be considered later. "It won't be 'Cut, Cap and Balance' as we
passed it," he said, referring to a House measure - killed in the
Democratic-controlled Senate on Friday - that would have required
spending cuts of an estimated $6 trillion as well as congressional
approval of a constitutional balanced budget amendment to send to the
states for ratification. In a conference call with members of his
caucus, Boehner was quoted by one participant as saying the new
approach is "going to require some of you to make some sacrifices." Late
Sunday afternoon, Obama met Senate Majority Leader Harry Reid and House
Minority Leader Nancy Pelosi, the top Democrat in the lower chamber of
Congress, for a progress report. Afterward, a White House
official said Obama and the Democratic leaders "reiterated our
opposition to a short-term debt limit increase." Markets around the world were watching nervously.