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Originally published Saturday, July 23, 2011 at 8:35 PM

Dealing with Debt

Warning lends new urgency to debt talks

Congressional leaders raced Saturday to develop a new strategy for raising the federal debt limit that House Speaker John Boehner told his troops would include a plan to reduce future borrowing by up to $4 trillion.

The Washington Post

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WASHINGTON — Congressional leaders raced Saturday to develop a new strategy for raising the federal debt limit that House Speaker John Boehner told his troops would include a plan to reduce future borrowing by up to $4 trillion.

Although his talks with President Obama over a "grand bargain" to restrain the national debt collapsed in acrimony Friday, Boehner, R-Ohio, said in a conference call with House Republicans that he is confident lawmakers will avert a historic U.S. default Aug. 2.

Boehner and other leaders started Saturday at the White House, where Treasury Secretary Timothy Geithner warned of possible trouble in the markets if policymakers don't announce a viable plan for raising the debt limit before Asian exchanges open Sunday, according to people familiar with the meeting. Aides said Geithner's warning lent fresh urgency to the negotiations, which continued throughout the day on Capitol Hill.

By early evening, the outlines of a two-stage strategy were emerging. First, lawmakers would vote on a package to cut agency spending by up to $1 trillion over the next decade and raise the debt limit, currently $14.3 trillion, by the same amount. That would give Geithner enough borrowing authority to cover the nation's bills through the end of this year.

Then Congress would go to work to produce up to $3 trillion in additional savings through an overhaul of the tax code and major changes to Social Security and Medicare.

Policymakers were haggling over the process. One option is creating a bipartisan debt-reduction committee made up of 12 lawmakers representing the House and Senate, an idea offered this month by Senate Majority Leader Harry Reid, D-Nev. Another option is directing existing committees in Congress to make tax and entitlement changes aimed at meeting specific savings targets.

The two parties remained at odds, however, over how to force Congress to produce the second round of savings. Boehner proposed making the next debt-limit vote contingent on a plan to reduce future borrowing. But Democrats were insisting on a plan that would postpone another debt-limit showdown until after the 2012 presidential election.

Boehner, Reid, Senate Minority Leader Mitch McConnell, R-Ky., and House Minority Leader Nancy Pelosi, D-Calif., met briefly in Boehner's office late Saturday to try to resolve the issue. They emerged without a resolution.

The two sides agreed to keep working to produce a plan Sunday.

Obama has repeatedly objected to a short-term debt-limit extension, arguing it would invite the same high-stakes gridlock that threatens the sputtering U.S. recovery and global markets. The president made that case again Saturday morning when Boehner, Reid, McConnell and Pelosi gathered at the White House for a brief meeting.

Obama called the meeting after Boehner walked out Friday on debt-limit talks with the White House for the second time in two weeks, again citing differences on taxes.

In his conference call with Republican lawmakers, Boehner made clear a short-term extension is among the options on the table, participants said.

And he appeared to rule out the most likely alternative to a short-term deal: a process proposed by McConnell this month that would authorize Obama to raise the debt limit in three installments without explicit congressional approval.

"The goal of our discussions now with the leaders is not to do something in the Reid-McConnell framework," Boehner said, according to one participant. "It will be something new."

A senior GOP aide, meanwhile, accused Obama and other Democrats of trying to shape the debt-limit debate to suit their political needs.

"It would be terribly unfortunate if the president was willing to veto a debt-limit increase simply because its timing would not be ideal for his re-election campaign," the aide said, speaking on the condition of anonymity.

Meanwhile, there were lingering doubts about Boehner's ability to rally support for a debt-limit increase of any size among House Republicans, many of whom continue to push their plan to sharply cut spending over the next decade and adopt a constitutional amendment requiring Congress to balance the budget. Such a plan passed the House, but failed Friday in the Senate on a party-line vote.

Freshman Rep. Blake Farenthold, R-Texas, said Republican leaders remain concerned that even a small increase in the debt limit would fail on the House floor.

"I think their concern about bringing it to the floor is whether they can get 218 votes or not," Farenthold said in an interview. "Everybody wants to only go through this pain once."

Polls indicate that raising the debt limit is hugely unpopular among voters, although leaders of both parties have argued it is essential to protecting the value of the dollar and the strength of the U.S. economy.

The Treasury is due to run short of cash to cover the nation's bills Aug. 2 without additional borrowing authority.

All three major rating agencies have threatened to downgrade the United States if the debt limit is not raised.

The current AAA rating identifies U.S. Treasury bonds as one of the world's safest investments and that has helped the nation borrow at extraordinarily low rates.

So far, the market for Treasury bonds has shown little distress over the possibility of a U.S. default. Interest rates have remained extremely low.

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