Republican rebels force new delay in debt crisis

Urgent efforts to avoid an unprecedented U.S. debt default suffered a new blow on Thursday when some fiscally hardline Republicans blocked a budget deficit plan proposed by their own congressional leaders.

After hours of trying to get enough votes, the Republicans who control the House of Representatives put off

action for the night and scheduled an emergency meeting for Friday morning.

The Republican infighting further delays any compromise with Democrats to stop the countdown toward Tuesday when the government says it will run out of money to pay all its bills.

Lawmakers must lift the government's $14.3 trillion borrowing limit by August 2 or risk a devastating default and downgrade of the top-notch credit rating that helps make U.S. debt a pillar of the global financial system.

There was speculation House Speaker John Boehner, the top Republican in Congress, may revise his plan to attract more votes from rebels who want bigger cuts in spending than the roughly $900 billion over 10 years he has proposed.

"Republicans have taken us to the brink of economic chaos," House Democratic Leader Nancy Pelosi said. "The delay must end now so we can focus on the American people's top priority: creating jobs and growing the economy."

Even if it passes, the Boehner bill is certain to be killed in the Democratic-controlled Senate but could still feature in any possible compromise. Boehner's difficulties in securing votes weakens his bargaining position, Democrats said.

Investors, unnerved by the risk of a U.S. default or downgrade, are watching anxiously.

The dollar sank to a fresh four-month low against the yen and Asian stocks struggled after the announcement that the House would not vote on Thursday evening.

In U.S. trading earlier on Thursday, the stock market's broad S&P 500 index fell for a fourth day and interest rates soared on some Treasury bills that mature in August.

In a strongly worded commentary, China's state-run news agency Xinhua criticized U.S. lawmakers for flirting with a disastrous default, saying the world's largest economy has been "kidnapped" by "dangerously irresponsible" politics.

No policymakers in China, the largest foreign creditor to the United States, have commented on the crisis but Xinhua said "the ugliest part of the saga is that the well-being of many other countries is also in the impact zone.

International Monetary Fund chief Christine Lagarde warned of the risks if Congress fails to act.

"One of the consequences could be a decline of the dollar as a reserve currency and a dent in people's confidence in the dollar," Lagarde told PBS NewsHour in an interview.

U.S. financial executives added their voices to calls from the business community for Congress to strike a deal.

ARM-TWISTING

Boehner has been grappling with lawmakers such as Mick Mulvaney, a supporter of the Tea Party movement that represents a new force on the Republican right flank.

"I'm still a no," Mulvaney said as he left Boehner's office to pray at the congressional chapel before the vote was canceled for the night.

Republicans changed procedural rules to allow them to bring up the bill for a vote quickly on Friday.

Many Americans are outraged that Washington cannot reach a deal after many weeks of polarized and acrimonious debate.

There were increasing calls by some Democrats for President Barack Obama to raise the debt ceiling on his own by invoking the 14th Amendment of the Constitution -- a clause dating from the Civil War era of the 1860s that the U.S. public debt "shall not be questioned."

The White House has resisted taking such a step.

Some wavering Republican House members were insisting on tying a debt limit increase to passage of a balanced budget amendment to the Constitution, according to a Republican aide.

The Senate rejected such an approach last week.

Even if a deal is reached to lift the debt ceiling, a downgrade of the U.S. credit rating is likely unless a big dent is made in the deficit. A downgrade would raise borrowing costs, hurt an already weak economy and rattle global markets.

Once the House acts one way or the other, action will move to the Democratic-controlled Senate. Boehner's plan is doomed in the Senate, where Democratic Leader Harry Reid is pushing his own deficit reduction plan.

But after both chambers have their say, frantic talks are expected this weekend to seek a compromise to permit a vote on raising the debt ceiling and staving off a default on Tuesday.

"I think there will be a whole new stage of the Senate and House having to come together to avoid August 2nd as being a day that has never happened in the U.S.," White House chief of staff William Daley told CNN.

Republican leaders were engaged in arm-twisting as they tried to secure the 217 votes needed to pass the Boehner bill in the House and avoid a humiliating defeat.

A stream of lawmakers who had decided to vote against the plan came and went from Boehner's office. Whatever was said did not seem to be changing many minds.

Republican Representatives Louie Gohmert and Joe Walsh said they would still vote against the bill. Trent Franks and Jeff Flake would not say where they stood.

ON TENTERHOOKS

Boehner's plan for about $900 billion in cuts is twinned with a short-term debt ceiling increase. Lawmakers would have to come up with further spending cuts to raise the debt ceiling again in several months -- just as the campaign heats up for congressional and presidential elections in November 2012.

Reid's plan, backed by Obama, would cut $2.2 trillion from the deficit over 10 years without raising taxes and extend the debt ceiling through next year.

At the White House, Obama and his team also worked late into the evening to avert a default that would scar his presidency, no matter who was at fault, as he prepares to ask Americans for a new four-year term in 2012.

Despite the gridlock, Congress could kick into higher gear as pressure to reach a deal mounts before Tuesday.

"The markets are going to be on tenterhooks until we get an understanding of what the quality of the package is," said Kevin Caron, market strategist at Stifel, Nicolaus & Co.

White House senior adviser Valerie Jarrett told Reuters Insider the Treasury secretary would face very difficult decisions if the deadline is not met.

"Do we say to our servicemen and women serving abroad that we're not going to pay them and support their families? Do we say to the 70 million, 80 million people who receive Social Security that we're not going to pay them?" she said. "Or small businesses who are vendors of the United States government?"

WRAPUP 1-"Gang of Six" provides hope for US debt talks

Armed with a new template, President Barack Obama and congressional leaders on Wednesday will try to see if an 11th-hour deal is still possible to avert a rapidly approaching default.

The ambitious new plan, unveiled by a group of senators known as the "Gang of Six," offers a ray of hope in

an increasingly grim standoff that has threatened the United States' top-notch credit rating.

As they study the details, congressional leaders will determine if the plan could point a way out of the impasse. A more modest proposal likely will be needed to avert the looming disaster but the Gang of Six plan could help lawmakers thrash out a broader budget deal in the coming months to address long-term fiscal problems.

Initial reaction was positive. Obama seized on the plan as a "very significant step" on Tuesday and urged congressional leaders to start discussing it. Senators from both parties embraced it while Republican leaders in the House of Representatives said it contained some good elements.

Investors welcomed the plan as well, driving up the price of 30-year Treasury bonds sharply and pushing U.S. stocks to their best day since March.

Obama and Republicans have been unable to forge an agreement that would raise the $14.3 trillion debt ceiling before the country runs out of money to cover all of its bills on Aug. 2.

Both sides agree that spending cuts should accompany a debt-limit increase to tame the rapidly mounting debt but have been unable to agree on the particulars. White House talks on a comprehensive deficit-reduction deal have stalled over tax increases, which Republicans oppose.

The Gang of Six plan includes many of the same politically risky remedies that have doomed other efforts but pairs them with incentives that could defuse opposition.

Republicans might object to the $1 trillion-plus in new tax revenue generated by closing an array of loopholes and breaks but they have welcomed the lower income tax rates that the plan also would provide.

Democratic distaste for the plan's $500 billion squeeze of Medicare and other health plans could be softened by assurances that their essential services would be maintained.

OBAMA'S HOPES

With less than two weeks until the Aug. 2 deadline, congressional aides say it is probably too late to use the Gang of Six as the basis for a debt-ceiling increase. But it could encourage a new round of discussions.

"My hope ... is that they tomorrow are prepared to start talking turkey and getting down to the hard business of crafting a plan," Obama told reporters on Tuesday.

It is not clear whether Obama would resume the high-profile White House meetings that ended inconclusively last week.

Democratic Senate Leader Harry Reid will speak with Obama on Wednesday, an aide said, but a meeting with all of the top leaders in Congress did not appear likely.

Obama's schedule remains relatively open, according to the White House.

Meanwhile, Congress is moving ahead with other debt-limit measures.

The Republican-controlled House passed a bill on Tuesday that would tie a debt-ceiling increase to passage of a balanced-budget amendment to the Constitution. That approach is expected to fizzle in the Democratic-controlled Senate.

In the Senate, leaders of both parties are crafting a complex compromise that would give Obama the authority -- and the blame -- for raising the debt ceiling.

Procedural hurdles could push a vote well into next week, meaning that final passage could come in the final days before Aug. 2.

Although that plan could avert a default, it is not likely to satisfy ratings agencies that are looking for a solution that would prevent the debt from growing out of control. Moody's Investors Service analyst said the Senate's compromise plan could result in a negative outlook on the U.S. credit rating, a sign of a possible downgrade in 12 to 18 months. 

Weiner says online contact with teen not indecent

Police in Delaware said Friday they interviewed a 17-year-old girl about online contact she'd had with embattled U.S. Rep. Anthony Weiner but that she didn't disclose any information about illegal activity. Weiner, the 46-year-old congressman who has been under fire after admitting to sending graphic photos to women online, acknowledged Friday that he had online contact with the girl but said the communications were "neither explicit nor indecent." The New York Democrat issued his statement after

FoxNews.com reported Friday that officers had interviewed the high school junior at her family's home north of Wilmington. "They were made aware of an alleged contact between Congressman Anthony Weiner and an area teen," said Officer Tracey Duffy, a New Castle County police spokeswoman. "The teen has been interviewed and disclosed no information regarding any criminal activity." Duffy said the investigation was continuing. Weiner spokeswoman Risa Heller said in a one-sentence statement Friday night, "According to Congressman Weiner, his communications with this person were neither explicit nor indecent." FoxNews.com reported that two officers visited the girl's home around 4:30 p.m. and that they were joined by another officer. The news web site reported that police left after about 30 minutes, and that the girl and her mother then departed in a separate car. FoxNews.com reported that the girl, whom it declined to identify because she is a minor, said, "I'm doing OK." The news web site had a reporter outside the house when the police visit occurred. Late Friday night, no one answered when an Associated Press reporter called and knocked at the door of the teen's house even though lights were on and people were inside. The modest two-story house, in a neighborhood near the Pennsylvania border, had red, white and blue bows on the porch and two small American flags planted in the ground. Neighbor Ben Melvin said the media was paying way too much attention to the Weiner episode. "I don't think it's good for her and I don't think it's good for the nation," Melvin said. "It's a sideshow. It has nothing to do with his abilities as a representative. On the other hand it obviously shows some lack of judgment or something." A shirtless man approached reporters standing outside the family's house and began threatening them with an ax. New Castle County police responded and took the man into custody. Weiner, a seven-term Democrat, has acknowledged sending sexually explicit messages over the Internet to a half-dozen women over the past three years and then lying about it. Weiner is married to Huma Abedin, a top aide to Secretary of State Hillary Rodham Clinton; Abedin is pregnant with the couple's first child. Amid increasing calls for the 46-year-old Weiner to resign, House Democratic leader Nancy Pelosi said earlier Friday in San Francisco that the decision should be up to the congressman and his constituents. Pelosi has asked the House Ethics Committee to investigate whether Weiner used any government resources. He has said he does not believe he did. Weiner told a newspaper Thursday he would not resign. At least nine House members and three senators said he should quit. U.S. Sen. Ron Johnson, a Wisconsin Republican, said Thursday he wished Weiner would resign "to get that story off the front page." He said the controversy distracts from pressing economic issues. Two former Democratic Party chairmen also said he should resign. Weiner did pick up support from U.S. Rep. Charles Rangel, a New York Democrat who was censured by the House last year for ethics violations. Rangel suggested that other members of Congress had done things more immoral than Weiner. Rangel said Weiner "wasn't going with prostitutes. He wasn't going out with little boys." In a recent poll of registered voters in Weiner's district, 56 percent said he should stay in office while 33 percent said he should leave. Associated Press writer Sarah Brumfield contributed to this report from Baltimore.

House deals symbolic blow to raising debt ceiling

The House overwhelmingly refused to raise the nation's borrowing ability Tuesday — a largely symbolic vote designed to bolster Republican arguments that a successful measure must include deep spending cuts and sweeping policy revisions. The vote was never intended as a final decision on raising the government's debt ceiling, but as a step in the political process leading to Aug. 2. That's when budget officials project they will need to borrow more than the current ceiling of nearly $14.3 trillion.

Failure to increase the borrowing capacity would result in a first-ever federal default, which experts predict would lead to turmoil in financial markets and severe economic consequences. House leaders took steps to assure Wall Street that Congress does not intend to risk default, reaching out to market leaders before Tuesday's vote — which was scheduled in the evening, after U.S. financial markets had closed. "Today, we are making clear that Republicans will not accept an increase in our nation's debt limit without substantial spending cuts and real budgetary reforms," said Rep. Dave Camp (R-Mich.), chairman of the House Ways and Means Committee. Democrats charged that Republicans were playing with fire as they tried to force GOP priorities, including the Republican proposal to revamp Medicare, into the budget talks. "This is a political stunt," said Rep. Chris Van Hollen (D-Md.). "This is about threatening to default on the full faith and credit of the United States unless we put in place a Republican budget." Congressional leaders and the White House are negotiating behind closed doors, seeking a package of spending cuts and budget policies that would entice Republicans to support a higher debt limit. GOP leaders have said they would not agree without trillions in cuts, and they want changes in programs such as Medicare. President Obama has invited House Republicans to the White House on Wednesday and Democrats later in the week. The nation reached its debt limit last month, but the Treasury Department has said it can take extraordinary measures to continue paying obligations through Aug. 2. After that, it risks default. Tuesday's proposal would have increased the nation's borrowing capacity by an additional $2.4 trillion, to $16.7 trillion, to cover the government's obligations through the 2012 calendar year. It failed on a vote of 318 to 97, with all Republicans voting against it. Democrats split on the question, with 97 in favor and 82 opposed. The vote provided political cover to Republicans who had campaigned against raising the debt limit. It also was designed to force onto the record those Democrats who had sought a "clean" debt vote, free from demands for budget cuts and policy changes. Democratic leaders, imagining the television ads that would target lawmakers who voted to increase the debt limit under such circumstances, suggested their members vote with that in mind. The U.S. Chamber of Commerce has been working with freshmen lawmakers, many backed by the conservative "tea party" movement, to ensure the debt limit is eventually raised. The debt ceiling has been lifted frequently in recent decades, including under former President George W. Bush, when the borrowing limit nearly doubled, going from $5.9 trillion in 2001 to $11.3 trillion at the end of 2008.

Wisconsin's Walker accuses Senate Democrats of blocking negotiations

A chance to end the legislative standoff that has paralyzed the Wisconsin government for weeks seemed to slip away Monday after Gov. Scott Walker (R) accused the leader of the state Senate Democrats of blocking negotiations to end the impasse.

After some of the 14 Senate Democrats who fled the state to block a vote on the governor's proposal to sharply curtail collective-bargaining rights for government workers in Wisconsin signaled their possible willingness to return, Walker called a news conference at which he accused the legislators of being the biggest impediments to ending the stalemate.

The governor said members of his staff seemed to be making progress in negotiations with some of the absent Democrats, only to have Senate Minority Leader Mark Miller stand in the way. He also accused Miller of being in the pocket of organized labor, whose leaders Walker blames for escalating the conflict into a national drama.

"Senator Miller is misleading the public, just like he misled us," Walker said, adding that Miller was also "misleading his own caucus."

The governor's comments came after at least one Democrat said Monday morning that he and his colleagues were on the verge of returning to the state because they were sure that voters would consider the passage of Walker's "budget repair" measure an overreach that would quickly weaken Republicans' hold on power in Wisconsin.

But the governor's comments later in the day seemed only to deepen the Democrats' resolve to stay away until he gives in on his demand to end collective bargaining for public employees.

"The bottom line is the governor is still intent on breaking the backs of workers' unions and assaulting the middle class," state Sen. Robert Jauch said after Walker's comments to reporters. "You don't go to peace talks with a grenade. And that's what he threw at his press conference."

In a statement, Miller said: "I would hope as we move forward the Governor and Republican leaders will spend less time at press conferences and more time on the phone or at meetings pursuing a resolution to our differences."

The fight over Walker's bill has drawn national attention as labor leaders and many independent analysts say it would have the effect of killing public employee unions in the state. Similar proposals have surfaced in other states, including Indiana and Ohio.

In Wisconsin, the measure has ignited a firestorm of protests, and tens of thousands of pro-union demonstrators have descended on the capitol in Madison over the past few weeks to oppose it.

If the exiled Democrats return, Republicans - who hold a majority in the Senate - are expected to pass the measure. Walker has said the would give him and local leaders the power to cut the pay of public employees and allow the state to close its budget deficit without raising taxes.

On Friday, the governor began the process of laying off 1,500 state employees, notifying unions that pink slips will go out in 15 days. He also said that layoffs would occur in a month if the bill is not passed.

In the past, Walker has said that his measure to do away with most collective-bargaining rights is non-negotiable - a posture that apparently has hurt him in public opinion surveys. In a series of polls, voters in Wisconsin and nationwide say they oppose the governor's attack on collective bargaining, even as people agree that public employees should sacrifice some of their pay to help cash-strapped states balance their budgets. State employees in Wisconsin have offered to make significant pay concessions.

In his news conference, Walker reiterated his stance that the measure is not open to compromise, but he added that his staff had been in discussion with Democrats about how the "mechanics" of the measure would work, to perhaps make it more acceptable. Although those talks have at times been promising, he said, they have been frustrated by Democratic leadership.

Jauch said the bill should eventually receive a vote but he did not guess when the Democrats would return to allow it.

"It was an almost spontaneous event when we left Wisconsin," he said. "We always planned to come back. Never in our wildest dreams could we imagine this historical outpouring of support from the public."