White House, Republicans inching toward debt deal
Senate Minority Leader Mitch McConnell, R-Ky., is pursued by a reporter as he arrives at his office on Capitol Hill in Washington Sunday, July 31, 2011, after speaking about ongoing debt negotiations on Sunday talk shows. (AP / Harry Hamburg)
Speaker of the House John Boehner, R-Ohio, left, and Senate Republican leader Mitch McConnell of Kentucky, appear at a news conference as the debt crisis goes unresolved on Capitol Hill in Washington, Saturday, July 30, 2011. (AP / J. Scott Applewhite) |
Updated: Sun Jul. 31 2011 09:48:30
The Associated Press
The Associated Press
WASHINGTON — Washington politicians appear to be inching closer to an agreement that could end the bitter dispute over the debt ceiling and avert a federal default, but long-term problems remain for the U.S. economy.
The White House and congressional Republicans are, according to officials who spoke on condition of anonymity, discussing a deal that would see the U.S. debt ceiling raised by about $2.4 trillion in two steps while cutting federal spending by slightly more than that amount.
The first step, which would take effect immediately, cuts spending by about $1 trillion,. The remainder would be trimmed before the end of the year.
Senate Majority Leader Mitchell McConnell said on Sunday he was very close to recommending a tentative agreement to Republicans in the upper chamber.
The agreement would contain none of the tax increases sought by U.S. President Barack Obama and would introduce a constitutional amendment that would require a balanced budget, said McConnell. Republicans have been resisting any talk of tax hikes while Obama wants a deal that will stand until after the 2012 presidential and congressional elections.
A senior White House adviser later said both sides are in general agreement on a deal, though key details still need to be worked out.
Without a compromise in place by Tuesday, Aug. 2, officials say the Treasury will run out of funds to pay all the nation's bills. Such event is seen as a looming catastrophe that threatens to scuttle America's financial status and send economic shockwaves around the world. The political standoff has been marked by late-night negotiations and heated rhetoric on both sides of the aisle.
But even if the talks are successful, author and radio commentator Peter Schiff says the U.S. economy still faces challenges.
Schiff said the U.S economy is largely helpless to the lending ceiling of other countries, most notably China.
"The real ceiling is the one we can't raise," Schiff told CTV News Channel on Sunday.
"What happens when people lending [the U.S.] money say they've loaned too much to us and that they don't think we can pay it back?"
The bad news for the U.S. would be good news for China, Schiff added. "The Chinese economy will boom when they stop buying our debt but ours will collapse."
Schiff says individuals can protect themselves by "limiting their exposure" to the U.S. greenback. He says Canadians are relatively safe because of the strong loonie in relation to the U.S. dollar. Ottawa, however, should raise its interest rates to curb the Canadian dollar's downward slide against other world currencies.
"Hopefully Canada will come to its senses and raise rates," he said.
U.S. investors, meanwhile, should turn to the commodities market, precious metals such as gold and silver, and currencies and bonds from other nations to gird their own portfolios, he said.
With files from Associated Press