US lawmakers take first tentative steps towards a deal to avoid debt default

PUBLISHED : Tuesday, 08 October, 2013, 10:36am
UPDATED : Wednesday, 09 October, 2013, 8:52am

US lawmakers began taking tentative steps towards avoiding a catastrophic government default as the partial federal government shutdown continued, rattling markets in the US and overseas.

Senate Democrats are drafting legislation to raise the nation's debt limit without the type of unrelated conditions Republicans say they intend to demand. It likely will permit US$1 trillion or more in borrowing above the current US$16.7 trillion  ceiling.

Depending on the Republican response, it could be the 8middle of next week before a final vote is taken, close to the October 17 deadline that Treasury Secretary Jacob Lew has set for Congress to avert a possible default.

That plan emerged as Gene Sperling, the director of Obama's National Economic Council, opened another route toward at least a temporary resolution. He declined to rule out a short debt-limit extension while reiterating the administration's preference for a longer-term resolution.

The fight over funding for President Barack Obama's new health care law has already pushed hundreds of thousands of workers off the job and stopped an array of government services. A default could have far bigger consequences, possibly triggering a recession that  would echo 2008 - or worse.

Republicans are expected to oppose the measure if it does not contain budget cuts to make a dent in the federal deficit.

White House aide Jason Furman said the White House could accept some add-ons if Republican House Speaker John Boehner "needs to have some talking point for his caucus that's consistent with us not negotiating ... that's not adding a bunch of extraneous conditions."

A defiant Boehner has insisted that Obama must negotiate on changes to his health care law and spending cuts.

"The president's refusal to negotiate is hurting our economy and putting our country at risk," Boehner said on Monday.

Bloomberg, Associated Press