WASHINGTON (MarketWatch) -- The news from Washington seems mostly bad, but we can take some comfort in the fact there will be consequences.
And one of them may be a new twist in the presidential campaign and the emergence of a third-party candidate. New York Mayor Michael Bloomberg, for one, is starting to make noises like a candidate.
So here's the nuggets of good news among all the dross from the debate.
First, it looks like we can say goodbye to the grand bargain. It's a deal hardly anyone wanted, except President Barack Obama and a handful of pundits who liked the historical sweep of it.
After all, who really wants a deal struck by one of the most inept bargainers-in-chief ever to live in the White House and a Republican leadership trapped by the ideological intransigence of right-wing extremists?
We don't need a grand bargain -- not now, or six months from now, or ever. What we need are responsible politicians who understand a little bit about economics and who are willing to work in the public interest day after day, year after year.
Even a short-term debt ceiling reprieve that kicks the can down the road would be preferable to an ill-advised grand bargain that locks in harmful spending cuts for a decade.
In the end, it is more likely to be a middle-of-the-road muddle-through along the lines of proposals by those wily Senate leaders, Republican Mitch McConnell and Democrat Harry Reid.
You know already that any spectacle that sees McConnell and Reid emerge as the heroes is a sorry one, indeed.
Second, many of the main players are likely to end up with permanent damage to their reputations.
This is good news, because it's important to have no illusions going into an election year. Obama, as noted, has confirmed his reputation for ineptitude. Voters may choose to return him to office but they will have to adjust their expectations downwards.
Hopefully, House Speaker John Boehner and Majority Leader Eric Cantor will continue their internecine warfare and congressional Republicans will bicker their way out of majority control of the House.
Third, if the U.S. actually does slip into technical default -- nothing can be excluded right now -- it might embolden Bloomberg to undertake a run for president as an independent because it would give him a reasonable chance of winning. He has toyed with the idea before and always rejected it because he did not see a path to victory.
Obama would have trouble overcoming both a 10% unemployment rate and being the first president in history to allow the U.S. to default. Or, now that this brinksmanship has aroused the sleeping beast of the credit-rating agencies, a downgrade of U.S. debt could also provoke a political backlash.
It would be sad if the Republicans, who have shown themselves willing to sacrifice the welfare of the American people in order to sabotage the Obama presidency, succeeded in their plan.
But Obama, who suffers from the hubris of always thinking he's the smartest guy in the room, walked right into their trap in accepting the debt-ceiling debate on their terms instead of exercising leadership and keeping the focus on unemployment.
And it would be ironic if Bloomberg emerged as a candidate with an appeal to the centrists Obama though he could capture by sitting on the fence. It would not be hard to imagine a President Bloomberg governing with shifting coalitions in a divided government. (Full disclosure: I worked several years at Bloomberg LP when the New York mayor was still CEO.)
Mayor Bloomberg, in fact, felt compelled to speak out about the debt-ceiling debate this week. "While our budget deficit is bad enough, what's worse is Washington's leadership deficit that has put the nation at the brink of default," he said.
"Americans are disgusted with the gridlock and lack of compromise, and they have a right to be," Bloomberg went on. "There will be no political gains from a prolonged crisis; no one will win. Voters will blame all the incumbents; none of them will benefit."
Amen to that. Is this man running for president?
How appealing would a Mike Bloomberg-Chuck Hagel ticket look right now? That would be good news. Hagel, who served two terms as a Republican senator from Nebraska, was seen by many as a potential third-party presidential candidate himself.
It would be a long shot for Bloomberg or anyone else to step up as a third-party candidate and a much longer shot for such a candidate to capture the White House. It's never happened since our two-party system became the norm, but then the U.S. has never defaulted before, either.
It depends in the end on how severe the political backlash to this debacle will be. At present, regardless of the actual outcome of this nauseating debate, it looks like the public frustration and disgust with Washington that has been simmering for some years is ready to boil over.
Oil Bumps Up Against Glass Ceiling
By LIAM DENNING
Debt ceiling? Whatever. The oil market is used to dealing with somewhat more dramatic political spats, such as the odd revolution or invasion. Yet it's hard to simply ignore the possible default and downgrade of the world's No. 1 oil consumer.
Received wisdom says that if no agreement on the debt ceiling is reached in time, Treasurys and the U.S. dollar will dive along with faith in the world's Triple-A-credit-in-chief. On balance, that ought to benefit hard assets like oil.
But received wisdom is less useful when you are this far off the map. For one thing, large Treasury holders like China have little incentive to savage the value of their portfolio by selling. Nor is it clear where else they would park their dollars: Mattresses just don't come in that size. With 10-year Treasurys still yielding below 3% despite all the theatrics, a selloff in U.S. paper isn't a given.
Moreover, unlike gold, oil's primary utility is to be found in burning the stuff, not storing it in anticipation of Armageddon. So even if there is an impulse to buy oil as a financial hedge, there must ultimately be an economic underpinning to the price. Here, Washington is likely to be a bearish influence, agreement or no.
The reason? Austerity. The current infighting is about how and when to rein in federal spending, not whether to. If the debt ceiling isn't raised, the chance of a double-dip recession rises markedly. Steven Wieting at Citigroup calculates that if Uncle Sam could spend only his revenues, he would have to tighten his belt to the tune of 8% of gross domestic product. With unemployment still high, consumer spending would take a big hit, with gasoline demand suffering. Already, vehicle miles traveled in the U.S. fell almost 2% year-on-year in May.
If a deal is reached, it will be because it incorporates enough spending cuts to gain Republican backing. Longer-dated cuts would be more bullish for oil. But will Republicans at this stage sign onto any deal that doesn't involve some pain before the 2012 elections?
A roughly two-year period of U.S. and Chinese fiscal stimulus combined with extraordinarily lax monetary policy is drawing to a close. This trend will likely outweigh any positive effect of the debt-ceiling impasse. It is telling that crude oil's 30-day correlation with gold—the real impasse hedge—continues to fall and is now at its lowest since December.
Oil's big rally this year came in the spring, when Libya's output was taken off the market amid the roar of guns. A resolution of that crisis would be truly significant for the oil market. Washington might revel in the high drama of its debt dispute. But it's no Tripoli.
What Democrats did wrong on the debt ceiling in 2010
By Ezra Klein
Felix Salmon writes that since Republicans could never have agreed to a grand bargain that included taxes, “there was no point even trying to construct one.” The cost of that mistake, Salmon says, “is going to be enormous ... I can’t help but draw some kind of causal connection between Treasury’s oversized ambitions and the current mess.” Brad DeLong agrees. He calls it the White House’s “greatest unforced error.”
I can think of a way that this all might have turned out differently. But it’s not the one that Felix hints at here. The world in which the Obama administration simply refused to deal on the debt ceiling isn’t a world in which Republicans cracked and gave him the increase he was looking for. Raising the debt ceiling is really, really unpopular. The idea that Congress should vote itself more authority to run deficits is really, really unintuitive. Even now, after many months of coverage and the most aggressive communications campaign this White House has attempted, Americans are closely split on whether we need to raise the debt ceiling by Aug. 2.
Whenever I try to run out the logic of Obama simply refusing to allow Republicans to take the debt ceiling hostage, I end up with us approximately where we are now, but Obama’s numbers are lower, the GOP’s numbers are higher, a number of congressional Democrats have broken ranks, and Washington elites are firmly arrayed against the White House. It’s not a line of reasoning that leads to a better outcome for Democrats.
This issue is playing out essentially as you would expect given the basic power imbalance at its heart: Many elected members of the GOP really are willing to let Treasury exhaust its borrowing authority. Very few elected Democrats can say the same. For that reason, Republicans always had the leverage on this issue, and in that world, Democrats could never have credibly refused to deal. You can ask whether Obama should have offered as much as he has, but I think that’s a more marginal question given that the GOP has rejected everything he’s proposed.
But there was a moment when Democrats did have the leverage: December 2010. The election was over. Nancy Pelosi was still speaker of the House. Harry Reid still had 59 Democrats in the Senate. The Bush tax cuts were expiring. And Democrats had a perfectly popular and intuitive position: Extend the cuts for the middle class but, in a time of deficits and sacrifice, sunset the cuts for the rich.
Republicans, of course, didn’t want to allow the Bush tax cuts for the rich to expire. They were, in fact, desperate to preserve them. Which meant Democrats had the leverage. And they used it. To secure a temporary extension, Republicans had to accept a substantial round of additional stimulus: A one-year payroll tax cut, an extension of unemployment insurance, and a handful of sundry other stimulus measures. And the extension only lasted for two years, so the White House preserved the option of coming back and killing off the tax cuts after the 2012 election.
But there was one thing the deal didn’t include, that many observers -- myself included -- said should have been there: an increase in the debt ceiling.
It seemed to fit. The deal was going to increase the deficit by almost a trillion dollars, so it was going to accelerate our collision with the debt ceiling. It was passed by an outgoing Congress, and it’s always easier for retiring legislators to take tough votes than it is for newly elected legislators to take them. And it would have headed off the awful choice that Democrats face this year: deep, sharp cuts that will slow the recovery, or a debt crisis that could plunge us back into recession.
But Democrats rejected it. One argument was political. As Harry Reid put it, “let the Republicans have some buy-in on the debt. They’re going to have a majority in the House. I don’t think it should be when we have a heavily Democratic Senate, heavily Democratic House and a Democratic president.” That didn’t make sense then, and it makes even less sense hearing it now. Republicans aren’t going to end up with buy-in on the debt. Their opposition to raising the debt ceiling is pretty clear. What they’re going to end up with is massive concessions on spending.
The other argument was legislative. Including the debt ceiling in the tax deal could have blown up the tax deal. And even if it didn’t, it might have slowed the negotiating such that the lame-duck session of Congress wouldn’t have had time to pass the START Treaty, the repeal of Don’t Ask/Don’t Tell, the 9/11 First Responders bill, and everything else it got done.
And maybe that’s right. But it needs to be balanced against what’s happening now, which includes the certainty of massive spending cuts and the risk of a huge economic crisis. It seemed to me at the time that Democrats were overestimating the importance of a deal now and underestimating the dangers of Republicans taking the country’s credit rating hostage later. Now, with the benefit of hindsight, I’m certain they were.
By Ezra Klein | 04:01 PM ET, 07/26/2011
Wall Street bracing for possible downgrade of U.S. credit
Debt-limit debate continues as clock ticks down: Negotiations have appeared to whipsaw from a fallback plan that would raise the debt ceiling but do little to control future borrowing to an ambitious, but complicated, bipartisan strategy for raising taxes and cutting cherished health and retirement programs.
By Zachary A. Goldfarb, Published: July 23
Wall Street’s top concern is no longer that the United States will fail to increase the federal limit on borrowing by Aug. 2 but that political leaders will fall short in their negotiations over an ambitious plan for taming the nation’s debt, according to financial analysts.
If President Obama and Congress are unable to reach such an agreement for reducing the debt, credit-rating firms — in particular, Standard & Poor’s — could cut the top-notch U.S. debt rating, sending a shock across U.S. financial markets.
Debt ceiling doomsday scenario: What happens if Congress fails to raise the debt limit and the U.S. can no longer make payments on its obligations?
S&P has said that raising the $14.3 trillion debt ceiling by the deadline, and thus avoiding a potential default, is not enough to avoid a downgrade. In any case, analysts say, many on Wall Street remain confident that Washington will cut a last-minute deal to raise the debt limit before the government runs short of money to pay all government bills and interest on existing debt.
But there’s not as much confidence about efforts to reach an agreement on debt reduction.
So Wall Street bankers have begun discussing plans for responding to a downgrade of U.S. credit, according to people familiar with the talks. Specifically, banks want to find ways to prevent a repeat of the 2008 financial crisis, when investors acting as a herd started demanding tens of billions of dollars in collateral from banks because of fears about their health.
Meanwhile, some financial firms have begun taking steps because of their own mounting concerns about what could happen in the bond market in the coming months. J.P. Morgan Chase has reported that some financial companies have started shifting from longer-term investments to bonds that will be paid back in the next seven days.
“The possibility that the United States could be downgraded for the first time is seeping into investor consciousness,” said Ajay Rajadhyaksha, the senior U.S. debt strategist at Barclays Capital.
Still, while concern on Wall Street is intensifying, it remains mild. Interest rates paid by Treasury bonds have stayed very low over the past few months — both at moments when political leaders appeared close to a deal and when they were far apart. Low yields suggest investors think there is little risk in holding them.
Even if the government fails to raise the debt ceiling, some analysts say, the expectation among investors is that the Treasury would use daily tax receipts to stay current on outstanding debt.
Political leaders, however, are increasingly worried that markets could turn against them at any time — and might be more likely to do so after the dramatic collapse Friday of negotiations between President Obama and House Speaker John A. Boehner (R-Ohio).
The speaker told GOP colleagues Saturday that he wants to announce a plan before Sunday night, when the the first signs of a market backlash could come, as exchanges open for weekday trading in Tokyo, Hong Kong and Shanghai.
Government officials are already planning for a potential failure to raise the debt ceiling. Tax revenue will allow Treasury to afford only about 60 percent of bills in August.
One key issue is whether the Federal Reserve, which handles payments on behalf of the Treasury Department, will be able to stop millions of electronic wire transfers from occurring if Treasury runs out of funds. Officials say they can stop all payments but that it could be difficult to change the systems so they can pay some bills and not others.
Another issue is whether investors will show up to buy Treasury bonds Aug. 4, when a large auction is scheduled. Treasury officials have been in talks with top domestic banks as well as foreign investors.
According to people on Wall Street, foreign central banks, one of the biggest investors in Treasurys, have signaled that they would continue to to buy the bonds. Other investors would also likely show up, officials have been told, but could demand higher premiums.
One of the major concerns turns on a short-term market where banks borrow cash from money market funds. Banks usually put up Treasury bonds as collateral.
Banks are worried that these funds, which are basically glorified savings accounts, will begin to demand more collateral if a downgrade occurs, which is what has happened in other countries that have faced downgrades.
If money market funds ask for more collateral, banks could suddenly face tens of billions of dollars in demand for new money, which could lead to a credit crunch.
Clinton Warns Escalating South China Sea Spats Threaten Asia Peace, Trade
By Daniel Ten Kate and Nicole Gaouette - Jul 22, 2011 11:50 PM CT .
U.S. Secretary of State Hillary Clinton warned today that escalating tensions in the South China Sea risk disrupting trade flows and called on Asian countries to clarify territorial claims.
“The United States is concerned that recent incidents in the South China Sea threaten the peace and stability on which the remarkable progress of the Asia-Pacific region has been built,” Clinton told a regional security forum in Bali, Indonesia. “These incidents endanger the safety of life at sea, escalate tensions, undermine freedom of navigation, and pose risks to lawful unimpeded commerce.”
Clinton commended China and the 10-member Association of Southeast Asian Nations for agreeing to guidelines for joint activities in the waters last week and urged them to accelerate a legally binding code of conduct. She called on countries to “exercise self-restraint” and avoid occupying uninhabited islands in the disputed waters.
The U.S.’s alliance with the Philippines and naval power in the Asia-Pacific has led to tensions with China, which claims most of the South China Sea as its own. The Philippines and Vietnam have pushed ahead with oil and gas exploration over objections from China, which has used patrol boats to disrupt hydrocarbon survey activities in disputed waters.
Clinton called on the countries “to clarify their claims in the South China Sea in terms consistent with customary international law, including as reflected in the Law of the Sea Convention,” Clinton said, according to prepared remarks that were given to reporters. “Consistent with international law, claims to maritime space in the South China Sea should be derived solely from legitimate claims to land features.”
Clinton is asking states to lay out their claims very clearly and unambiguously and to explain the legal basis for them, said a State Department official present for meetings on the South China Sea. That will force countries to look carefully at their approach, especially given that almost all claims to the waters are exaggerated, the official said, speaking on condition of anonymity.
The U.S. has not ratified the United Nations Law of the Sea Convention.
China last week rejected an attempt by the Philippines to have the UN’s International Tribunal for the Law of the Sea decide on the territorial dispute. The Philippines plans to ask another UN arbitration panel to demarcate disputed areas of the sea “to prove our claim,” Foreign Secretary Albert F. del Rosario said on July 20.
Along with the Philippines, Vietnam and Indonesia have released statements to the UN saying China’s “nine-dash map” of the waters has no basis in international law.
China says its claims “are supported by abundant historical and legal evidence,” according to an April submission to the UN. It said the Philippines “started to invade and occupy” its islands in the 1970s.
Chinese ships cut survey cables of Vietnam Oil & Gas Group vessels twice in the past few months and in March chased away a boat working for U.K.-based Forum Energy Plc that was surveying the area. A Chinese frigate fired warning shots at Philippine trawlers on Feb. 25.
China’s actions in the waters provoked protests in Hanoi over the past month and prompted a group of Filipino lawmakers to travel last week to the disputed Spratly Islands, which are also claimed by Malaysia, Taiwan, Brunei, Vietnam and China. All those countries except Brunei have troops stationed in the area.
“We believe that it’s important to respect the sovereignty and territorial integrity of China,” Liu Weimin, spokesman for Foreign Minister Yang Jiechi, told reporters yesterday after his meeting with Clinton. “I sense that the U.S. side understands the sensitivities of these issues.”
To contact the reporters on this story: Daniel Ten Kate in Bali at firstname.lastname@example.org; Nicole Gaouette in Bali at email@example.com
Boehner Ends Deficit Talks With Obama, Says Deal Was ‘Never Really Close’
By Julie Hirschfeld Davis and Mike Dorning - Jul 22, 2011 5:11 PM CT .
House Speaker John Boehner withdrew from negotiations with the White House on a broad deficit- reduction package and said he will instead talk with Senate leaders on a way to avoid a U.S. default.
“A deal was never reached, and was never really close,” Boehner said in a letter prepared for distribution to House colleagues. “In the end, we couldn’t connect.”
President Barack Obama said he had offered Boehner an “extraordinarily fair deal” that would cut trillions of dollars in spending, including on entitlement programs.
“It is hard to understand why Speaker Boehner would walk away from this kind of deal,” the president said.
“We have now run out of time,” Obama said, saying he is calling legislative leaders to the White House at 11 a.m. tomorrow.
Obama and Boehner have confronted strife within their ranks and dwindling time to avert a default as they pressed for a plan to boost the nation’s $14.3 trillion debt limit. The two leaders had discussed cutting spending by trillions of dollars and overhauling the tax code.
Boehner said he would “begin conversations with the leaders of the Senate in an effort to find a path forward.”
The Republican aide said the speaker decided to withdraw from the White House talks because of the limited time left to avoid default before Aug. 2, when Treasury officials project the U.S. will exhaust its legal debt limit.
Boehner told House Republicans earlier in the day that the House would have to vote on legislation by Wednesday so that it could pass both chambers of Congress in time, a Republican lawmaker said.
To contact the reporters on this story: Julie Hirschfeld Davis in Washington at firstname.lastname@example.org; Mike Dorning in Washington at email@example.com
By Sally Jenkins, Published: July 17
For absence of all reasonable behavior, for fits, spasms, shouts and other involuntary reflexes, have you ever experienced anything like the Women’s World Cup? If we at home were insensible and raw-throated after all the “GOALS!” and the “OH NOOOOOOS!” can you imagine how the participants felt? It was past 11 p.m. in Germany, and Japan and the United States were dirty, limping and panting with exhaustion. But underneath all the grime, players from both teams were covered with something else, too. Call it honor.
By then speechlessness had set in but what was there to say? Nothing, except a bewildered congratulations to Japan and thanks to both teams for such an unanticipated, enthralling spectacle — and thank God we don’t have to go through this again until 2015.
The only people who are entitled to feel bad about the United States’ enervating loss in the World Cup final on a penalty shootout after extra time are the handful of American players who thought the trophy was in their grasp so many times over the course of the game, only to have it wrenched away by what? An unforgiving crossbar, for one thing. But for another, a Japanese team playing for more than itself, that trailed twice but wouldn’t leave the field without answering, and at last won thanks to their diving goalie Ayumi Kaihori , whose flailing shin blocked Shannon Boxx’s first penalty-kick attempt and put the United States behind for the first time all game. “They never gave up,” Abby Wambach said simply.
Let’s get this straight: The World Cup has no magical powers than can make a tsunami and a nuclear meltdown un-happen. But it can console, and uplift and send a message home about fighting back, and you’d be one ugly American to begrudge them this victory.
You’d be ugly, too, to criticize the American team unduly for the loss after such a memorable run. The penalty-kick phase was inglorious — Boxx, Carli Lloyd and Tobin Heath each missed on successive attempts, no doubt affected by the pressure of the moment. But I’d defy any viewer or critic to hold up under the same circumstances, given the way Japan had seized the momentum with its overtime comeback. The Americans suffered from an invisible drag all game long, even though they dominated for long stretches, and twice led, including that 2-1 margin that came off Wambach’s header in the 104th minute. Though they ran themselves into the dirt mounting huge offensive surges, they were never properly rewarded on the scoreboard.
They had dozens of scoring chances — the United States could easily have led 4-0 in the first half. But balls bounced wide. They ticked off the post or the crossbar. Some went awry out of haste, or wrong decisions, or over-anxiousness. But in some cases they were just purely unlucky — Wambach missed one left-footed strike in the first half by a fraction of an inch. There was no understanding why shots simply wouldn’t go in the net. “You can’t,” Coach Pia Sundhage said.
You got the feeling it just wasn’t their day and you got the feeling that they had that feeling, too.
Overall, they did far more right than wrong in the tournament, both on and off the field, and they deserved applause. With their stirring comeback against Brazil, they engaged a U.S. audience that had largely ignored them. They had every right to reproach us for not paying attention to them between Olympics and World Cups, but they were gracious enough not to. One of the traits of this program over the last dozen years has been how uncomplaining the players are; they are never surly no matter how poorly paid or ignored they are compared with men’s soccer. Instead they just put their heads down and run as hard as they can. Though relative have-nots in a sports world full of entitlements, whose job futures in Women’s Professional Soccer are by no means assured, they don’t carp about their disadvantages; rather, they just keep trying to build a future. For that alone they command the deep respect.
“We’re pro athletes, something not many women have the privilege to experience,” Wambach said earlier in the week. “In order for me, in my life, to continue doing something so amazing, this job, it’s almost a duty to give these [younger] girls a platform to inspire themselves. . . .It’s almost a pay-it-forward system at this point. Some people call it a burden, but I don’t call it a burden. It’s a responsibility and it’s something I and my teammates take very seriously.”
Instead of whining about lack of coverage, they seized the previously apathetic nation’s attention with their heart and theatrics, and held it. All of a sudden, their locker room was full of reporters newly arrived from the States. Solo’s followers on Twitter increased from 10,000 to more than 130,000. Tweets of encouragement came from Lil Wayne, Tom Hanks, Wanda Sykes, and countless fellow athletes such as Aaron Rodgers, not to mention various Obamas, Bidens and Clintons. A handsome U.S. Army captain stationed in Afghanistan decided to quit shaving his upper lip until the U.S. women won, and made a YouTube video in which he invited Solo to the Austrian Officer’s ball, promising to shave first. Even some hard-bitten male sportswriters were entranced. ESPN’s “Pardon the Interruption” tweeted about them, and Peter King, football writer for Sports Illustrated, called for a Wambach cover — probably jinxing her.
It must have been hard to keep their heads on straight, but they did, and for that they deserved credit too, and so did Sundhage, that amateur folkie singer whose relaxed slouch and odd quirks couldn’t obscure her expert, sure-handed management.
In the midst of it all, the American players seemed to understand just how hard it would be to bring the Cup home. After their electrifying come-from-behind victory over Brazil in a penalty shootout, it was tempting to celebrate prematurely. “You know, it’s great, but let’s review,” Wambach said. “ We won a game we won nothing.” They didn’t underestimate the team they would be facing in Japan. Goalie Solo put it best. “They are the sentimental favorites of this tournament, and it’s pretty clear to us they’re playing for something bigger and better than the game. When you are playing with so much emotion and heart, that’s hard to play against.”
Obama, Congress haggle over debt deal
2:23 pm ET 07/11/2011 - MarketWatch Databased News
WASHINGTON (MarketWatch) -- President Barack Obama on Monday urged Congress to "pull off the Band-Aid" and "eat our peas" by agreeing to a large deficit-reduction package that includes immediate spending cuts and future tax increases.
In a press conference Monday, Obama called for compromise as party leaders seek to craft a deal that raises the legal limit on how much the U.S. government can borrow while slashing projected deficits over the next decade.
Democratic and Republican leaders held talks Sunday, but discussions broke down over taxes. The meeting ended quickly.
Obama said he would keep convening party leaders every day until a debt-limit deal is reached. He also said he would reject a stopgap measure of 180 days or less.
Yet John Boehner, the Republican Speaker of the House, said the two parties have hit an impasse over taxes and entitlement reforms. He said he's told the president a deal cannot pass in the House unless Democrats relent on their demand for tax increases and accept serious cost-saving changes in entitlement programs.
"The gulf between the two parties now is about policy," he said after the president's press conference. "It's not about politics or personality."
Congress has to raise the federal government's legal debt limit by Aug. 2 or the nation could be in danger of defaulting on its debt, Treasury Secretary Timothy Geithner has said. A U.S. default could put the economy back into recession and create panic in global financial markets.
The Treasury is already bumping up against a congressionally imposed borrowing limit of $14.3 trillion. The debt ceiling would need to be raised by about $2 trillion to allow the U.S. government to function normally until the 2012 election, based on the current rate of federal spending.
In the past few weeks talks about the debt limit morphed into a broader discussion between Obama and Boehner over a much bigger deal that could cut long-term deficits by up to $5 trillion. Yet Boehner pooh-poohed the idea of a "grand compromise" this weekend after Democrats insisted on sizable tax increases, Republicans say.
Republicans insist they won't impose new taxes as part of a pact to increase the debt limit, arguing it would weaken the economy.
"The last thing we should be doing right now at a time of 9.2% unemployment is enacting government policies that will destroy jobs," Boehner said.
Democrats say spending cuts alone can't resolve the nation's budget problems and that tax increases need to be part of the mix.
Congressional leaders met again Monday to try to breath fresh life into faltering talks. Obama said the two sides should continue to work on a longer-range compromise.
"The things I will not consider are a temporary stopgap measure to the problem," Obama said. "This is the United States of America. We don't manage our affairs in three-month increments."
The Republican-controlled House has demanded Obama agree to reduce future spending by the same amount as any increase in the debt ceiling. Over the next 10 years the U.S. is projected to spend $46.1 trillion, which would add $7 trillion to the federal debt, according to the Congressional Budget Office.
Independent budget experts say that even a deal to lower long-term deficits by $2 trillion will be hard to accomplish. Conservatives are balking at any tax increase and liberals are loathe to cut large entitlement programs such as Medicare, Medicaid and Social Security.
"You need about $2 trillion in actual deficit reduction to get us through two years. That is by itself a very daunting number," said Bill Galston of the Brookings Institution think tank. "I am scratching my head as how they get to an intermediate solution."
Obama acknowledged Democrats are resistant to cuts and he said he's prepared to "take significant heat from my party" to achieve a big deal that puts the U.S. government on much sounder financial footing. He said Republicans also have to compromise.
"I do not see a path to a deal if they do not budge, period," he said. "If their basic proposition is 'my way or the highway,' there probably won't be a deal done."
Obama also insisted he's not asking Republicans to raise taxes before 2013. He indicated a preference for letting tax cuts passed under the Bush administration to expire at the end of 2012 as scheduled.
"Nobody has talked about increasing taxes now or next year," he said.
Boehner, for his part, suggested Democrats are not really serious about restraining spending on of "out of control" entitlement programs, namely Medicare, Medicaid and Social Security. He also said an increase in tax rates were never part of his discussions with Obama.
Any deal is likely to involve sizable cuts in discretionary programs, which is everything else the government spends money on besides entitlements. There's also a chance Republicans will accept the elimination of some tax breaks and perhaps even modest reductions in defense spending, though not the deep cuts sought by Democrats, experts say.
Whatever party leaders agree to has to win support in a U.S. House in which fiscal conservatives dominate. If not enough Republicans go along, Boehner would need some votes from a largely liberal Democratic caucus. It would be a hard sell.
"There remains far too much complacency and far little appreciation for the politics of the vote on the debt ceiling," said Chris Krueger, a congressional analyst at MF Global in Washington, DC.
Despite all the hand-wringing in Washington, Wall Street still assumes that lawmakers will reach a deal in time.
"Asking what the U.S. economy might look like after a possible U.S. Treasury default is akin to asking, 'What will you do after you commit suicide?'" Citigroup economic strategist Steven Weiting told clients.