With just days to go before the deadline to resolve the US debt crisis, President Barack Obama has warned that Congress is “running out of time” on reaching an agreement to avoid default.
Speaking at the White House, Obama said he was confident both parties could break the deadlock over the dead ceiling – the maximum amount the US can borrow – but he said both the Republicans and Democrats must support the plan.
“We’re in rough agreement about how much spending can be cut responsibly,” he said.
“There are plenty of ways out of this mess. But we’re running out of time.
“The solution to solve the US debt crisis must be bipartisan.”
Sarah Smith blogs on "President Bartlet moment" and how the debt crisis would be solved on The West Wing
Congress has until August 2 to resolve the deadlock on the US debt crisis.
There are plenty of ways out of this mess. But we’re running out of time. US President Barack Obama
If the $14.3 trillion debt ceiling is not raised by Tuesday, the United States will lose its ability to borrow and will start to run out of cash to pay its bills.
US Republicans held closed door meetings on Friday after the expected vote on House of Representatives Speaker John Boehner’s plan was called off on Thursday because it did not have enough support.
Obama rejected Boehner’s bill, saying it “does not solve the problem”.
He said: “It’s a plan that would force us to re-live this crisis in just a few months.
“It would hold our our economy captive.”
Time 'running out': Watch the US debt figures continure to climb on the US economy debt clock
Mr Boehner wants to slash $917bn from the US budget deficit over 10 years and raise the debt limit by up to $900bn.
But even if the plan does get the backing of all Republicans, it could be vetoed by the White House and will almost certainly face defeat in the Democratic-led Senate.
But President Obama said he did support another plan by Senate Democrat Harry Reid, which would cut $2.2tn from deficits, and raise the debt ceiling by $2.7 tn.
Reid told the Senate he was open to making changes to his bill, which proposes lifting the debt ceiling until after the November 2012 elections.
“My door is open and I will listen to any idea that gets this done without avoiding a default.
“Too much is at stake to waste even one more minute. The train is leaving the station.
“This is our last chance to avert a default.”
Political economist Stephen Barber, based at London South Bank University, told Channel 4 News that “political motives” are prolonging the stalemate.
There’s a lot of political advantage on both sides, especially given we are well into the presidential cycle for 2012. The Republicans obviously want to use it to make Obama’s life difficult.-Stephen Barber, Political economist
“It doesn’t benefit either side economically.
“But there’s a lot of political advantage on both sides, especially given we are well into the presidential cycle for 2012.
“The Republicans obviously want to use it to make Obama’s life difficult.
“And for those in the grip of the Tea Party movement, if the US were to default, the almost immediate effect would be an increased cost in the US borrowing which would lead to higher interest rates and a rise in taxation, which is the very thing the Tea Party is trying to drive down.”
Mr Barber told Channel 4 that a potential default would have devastating effects for both the US and global economies.
“If the US defaults on its debt obligations, which is a worst case scenario, the repercussions are really serious.
“The US is seen as the safest place to invest in, there is barely a portfolio in the world that doesn’t have some exposure to US Debt.
“You would see a severe slowdown in US growth, and that means a slowdown in European growth because they’re very closely correlated.
“So hopefully both sides of Congress can come up with a solution, albeit at the eleventh hour.”
President Obama also warned on Friday that failing to resolve the crisis would further threaten America’s credit rating.
“If we don’t come to agreement, we could lose our country’s AAA credit rating.
“The power to solve this is in our hands.”
Stocks on Wall Street clawed back some ground after the President’s announcement.
But global markets have been severely rattled as investors remain uncertain about whether the US will default.
The fragility of the US economy was further highlighted on Friday with a raft of disappointing figures, including slowing growth and weak consumer data.
“The economy essentially came to a grinding halt in the first half of this year,” said Moody’s analyst Ryan Sweet.