‘Time running out’ on US debt crisis

Democrats and Republicans have failed to reach an agreement during five consecutive days of high-stakes talks.

The two parties are trying to forge a deal that would cut the US deficit and allow Congress to raise the $14.3tr borrowing limit before 2 August, when the US would run out of money and face default.

Obama has given top Democrats and Republicans until Saturday morning to reconsider their positions in the negotiations.

He told a news conference on Friday afternoon that “time was running out”.

The President said: “We should not even be this close to a deadline on this issue – this should have been taken care of earlier but it is encouraging that everyone believes this is something that has to be addressed.

“Show me a plan in terms of what you’re doing in terms of debt and deficit reduction. If they show me a serious plan I’m ready to move even if it requires me to make some tough decisions,” Obama said.

House of Representatives Speaker John Boehner, the top US Republican, said Obama and the Democrats had still not put a serious deficit plan on the table.

“They’ve been unwilling to put a real plan on the table. Without serious spending cuts … this problem is not going to be solved,” Boehner said after a meeting of House Republicans.

Financial markets are starting to worry that Republicans and Democrats are too far apart to reach a major budget agreement by 2 August, when the United States would run out of money unless the cap on government borrowing is raised.

If the US was to default President Obama would be forced into closing down parts of government and potentially freezing the pay of some public sector workers.

Read more: Obama's battle to avoid financial calamity

Mr Obama, who is running for re-election in November 2012, has rejected the idea of a stop-gap or short-term agreement that would require the debt ceiling to be raised again next year.

Republicans are pressing for at least $1 in spending cuts for every $1 that the $14.3tr debt ceiling is lifted, and say the White House needs to get serious about reducing spending to properly address the debt problem.

Democrats are open to certain cuts but want some tax increases and other revenue-builders to be included in any deal so that the burdens of the austerity plan are shared.

President Obama said: “You have 80 per cent of the American people who support a balanced approach … the problem is members of Congress are dug in ideologically to various positions because they boxed themselves in with previous statements.

“This is a matter of Congress doing the right thing and reflecting the will of the American people and if we do that we will have solved this problem.”

Compromises required for such a deal could be awkward for both Democrats and Republicans as the 2012 campaign heats up.

But a failure to raise the debt ceiling stands to hurt the fragile US economy and reverberate worldwide, driving up interest rates and shaking currency, equity and bond markets.