Business | Thu Oct 10, 2013 4:53am IST

Obama, Congress search for way out as pressure rises in fiscal stalemate

WASHINGTON (Reuters) - With pressure rising and no clear path forward for breaking their fiscal impasse, President Barack Obama began inviting lawmakers to the White House on Wednesday for meetings to discuss the government shutdown and raising the debt limit.

House Democrats will make the first visit later on Wednesday, and House Republican leaders will journey to the White House on Thursday as the search intensifies for a way to break an impasse that has worried markets and sparked warnings about the potential for economic havoc.

Obama invited all House Republican members, but House Speaker John Boehner limited the group to party leaders and prominent committee chairs, lessening the exposure of Obama both to Republicans who might dissent from the leadership's hardline strategy and to rank-and-file Tea Party members who inspired it.

There were no tangible signs of progress on Wednesday, although some members of both parties floated the possibility of a short-term increase in the debt limit to allow time for broader negotiations on the budget.

Republicans fiscal conservatives precipitated the crisis by demanding that Obama's healthcare reform law be delayed or curtailed in exchange for approving the funding of government operations and raising the debt ceiling.

The impasse has shut the government for nine days and rattled financial markets with the threat that the country's $16.7 trillion borrowing limit will not be raised before an October 17 deadline identified by Treasury Secretary Jack Lew.

Republicans and Congress in general have taken a public beating in the showdown, with an Associated Press-Gfk survey on Wednesday showing Congress as a whole at a rock-bottom 5 percent approval rating. More than 6 of every 10 Americans blamed Republicans for the impasse.

The White House meeting with House Republicans will be the first face-to-face talks between Obama and his political adversaries since last week, although lawmakers have informally been exploring possible compromises and ways to resolve the stalemate.

Republican senators on Wednesday were exploring a proposal by Senator Susan Collins of Maine that would get the government re-opened and borrowing authority increased while repealing an unpopular medical device tax designed to finance subsidies under the healthcare law.

Collins' plan also would give federal agencies flexibility in dealing with across-the-board spending cuts that kicked in earlier this year and are opposed by many members of Congress.

After a meeting of Republican senators, John McCain of Arizona called her initiative "a pretty good proposal that some of us like," and a Senate Republican aide said there are discussions about possibly incorporating a short-term debt limit increase into the measure.

"We continue to talk. No progress, but there never is until you reach a breakthrough," McCain told reporters "I'm not saying that we will ever reach a breakthrough. I'm saying conversations are going on. I hope that they reach some conclusion. I'm not sure whether they will or not."

All 200 House Democrats are invited to the afternoon session at the White House, and a group of 18 House Republican leaders will attend Thursday's session.

White House spokesman Jay Carney said Obama was disappointed that the entire Republican caucus would not attend.

"The president thought it was important to talk directly with the members who forced this economic crisis on the country about how the shutdown and a failure to pay the country's bills could devastate the economy," Carney said.

The meeting with Democrats on Wednesday will take place at 4:30 p.m. EDT/2030 GMT.

Obama scolded Republicans on Tuesday for demanding negotiations, but said he would talk about anything including the healthcare law if Republicans re-opened the government and lifted the debt ceiling even for the short term.


"If Congress opens the government, if Congress raises the debt ceiling, if Republicans allow that to happen, then, of course, he'd be willing to sit down and negotiate with lawmakers over our budget priorities," White House spokesman Jay Carney said.

"What he won't do is, in any scenario, pay ransom on behalf of the American people to the Tea Party in exchange for preventing default," he said. The Tea Party is a conservative political movement pressing for smaller government.

Boehner rejected Obama's demands as "unconditional surrender," but other Republicans have showed a willingness to consider a short-term deal if there was a framework in place for negotiations.

Those hopes were fueled by a column by House Budget Committee Chairman Paul Ryan of Wisconsin, who urged a negotiated end to the stalemate but did not mention Republican demands for linking changes in the federal healthcare law with government funding.

"I am beginning, by the way, to be a little hopeful regarding our current situation. It looks like the House is beginning to focus on the right things," Republican Senator Bob Corker of Tennessee said on CNBC, pointing to Ryan's column.

But Boehner took to the House floor on Wednesday to reiterate Republican demands that the healthcare law be part of the broader discussions.

"Our message in the House has been pretty clear. We want to reopen our government and provide fairness to all Americans under the president's healthcare law," Boehner said.

World Bank President Jim Yong Kim added his voice to a chorus of experts warning about the impact of the stalemate, saying on Wednesday that even the threat of a U.S. default could hurt emerging markets and the world's most vulnerable people.

"We're very concerned. Because right now there's so many headwinds as it is for emerging markets and the developing world, that that kind of impact really could be devastating," Kim told CNN.

Global stocks could plunge and long-term interest rates rise, dealing a severe blow to the global economy, if U.S. politicians do not reach a deal to raise their debt ceiling by mid-month, Bank of Japan Deputy Governor Hiroshi Nakaso said.

The warning followed similar comments by the finance minister on Tuesday, signaling Tokyo's worries about the impact on its holdings of more than $1 trillion of U.S. Treasury bonds if the political deadlock is not resolved soon.

U.S. stocks climbed on Wednesday in anticipation of the nomination of Janet Yellen as central bank chairman, after the S&P 500 dropped 1.2 percent on Tuesday, its worst decline since August 27, and hit its lowest level since September 6.

Senate Majority Leader Harry Reid reminded senators of the hit Wall Street took during the last major fight over the debt limit and government spending.

"Two years ago, the last time Republicans flirted with this terrible idea, America's credit rating was downgraded for the first time in the history of this great country," Reid said. "The stock market dropped 2,000 points (last time), it's already dropped 7 or 8 percent over the last few weeks."

Plenty of roadblocks remain in the way of a deal. Senate Democrats have begun advancing legislation that would increase the debt limit through 2014 without any conditions.

A first procedural vote is on track for some time Saturday. A senior Senate Democratic aide said the intention is to send the House a one-year debt limit increase without any add-ons.

Defense Secretary Chuck Hagel said on Wednesday families of troops who die during the government shutdown will receive a death benefit payment, despite legal restrictions on the Pentagon, thanks to a deal reached with a private charity.

Hagel made the announcement in a statement after attending a ceremony honoring the return to the United States of the bodies of four soldiers killed by insurgents in Afghanistan on Sunday. The Pentagon was unable to pay the $100,000 "death gratuity" to those families during the shutdown.

(Additional reporting by Mark Felsenthal, Richard Cowan; Writing by John Whitesides; Editing by Claudia Parsons and Cynthia Osterman)

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