US debt crisis: talks to avoid default make 'significant progress'

Negotiations to raise the US debt ceiling and avert the country's first ever default continued through the night on Saturday as Republicans and Democrats tried to reach a deal before markets open on Monday. Photograph: Alex Wong/Getty Images

The White House and Republican leaders in Congress have made significant progress toward a deal to raise the US debt ceiling and avert a potentially catastrophic default, according to officials familiar with the talks.

Under a plan negotiated late on Saturday night, the ceiling would be raised in two steps by about $2.4tn (?1.5tn) and spending would be cut by a slightly larger amount, the officials said. The first stage – to raise the ceiling by about $1tn – would take place immediately and the second later in the year.

Congress would be required to vote on a balanced budget amendment to the Constitution, but none of the debt limit increase would be contingent on its approval.

President Barack Obama is seeking legislation to raise the government's $14.3tn debt limit by enough to tide the US treasury over until after the 2012 elections. He has threatened to veto any proposals that might lead to a recurrence of the current crisis next year but has agreed to Republican demands that deficits be cut – without tax increases – in exchange for authorising additional US borrowing.

Without a compromise in place by Tuesday, administration officials say the treasury will run out of funds to pay the nation's bills.

The subsequent default, which would be the first in US history, could prove catastrophic for the US economy by causing interest rates to rise and financial markets to sink, and sending shockwaves around the world. With financial markets closed for the weekend, the parties to the negotiations had a little breathing space, but not much. Asian markets open for the new working week late Sunday afternoon Washington time.

"There is very little time," Obama said in his weekly radio and internet address on Saturday. He called for an end to political gamesmanship, saying: "The time for compromise on behalf of the American people is now."

One official commenting on the late night negotiations said the two sides had settled on general concepts, but that there were numerous details to be worked out – and no assurance of a final agreement.

"There are many elements to be finalised," Harry Reid, the Democratic majority leader in the Senate said. "There is still a distance to go."

Still, word of significant progress after weeks of stalemate offered the strongest indication yet that a default might be averted.

Mitch McConnell, the Republican leader in the Senate, said at a joint news conference with the House speaker John Boehner that he was confident a deal could be reached "in the very near future".

After a meeting at the White House with Obama and the House Democratic leader Nancy Pelosi, Reid initially disagreed with that optimistic assessment.

Past increases in the US debt ceiling have been routine, but Republicans, citing the giant US deficit, have demanded huge spending cuts as a condition for approving the increase this time.

After weeks of intense partisanship, there was renewed talk of compromise as both the House and Senate convened for extraordinary Saturday sessions.

McConnell and Boehner held their news conference shortly after the House of Representatives had rejected a Senate Democratic bill drafted by Reid to raise the government's debt limit by $2.4tn and cut spending by $2.2tn.

The House vote was 246-173, mostly along party lines and after a bitter debate. The vote was unusual in that Republicans lined up to kill Reid's legislation before it had even cleared the Senate. It was orchestrated as political payback because late on Friday Reid had engineered the demise of Republican proposals hours after it they were passed in the House.

Before the House vote, Republicans said Reid's proposals were full of gimmicks and would make unacceptable reductions in defence spending.

Pelosi said Boehner had chosen "to go to the dark side" when he changed his own legislation to satisfy the Tea Party movement and other critics, who insist taxes must not be raised to cut into federal deficits, even for the wealthiest US companies and individuals.

View the original article here

US debt crisis: Obama warns of 'tax rise for all' if deal cannot be done

US President Barack Obama during a press conference on the debt ceiling in which he said Republican proposals for a budget deal without tax increases were not credible. Photograph: Mandel Ngan/AFP/Getty Images

Barack Obama has warned that the US is "running out of time" to raise the limit on US government borrowing and that failure to do so will lead in effect to a tax increase for all Americans, because a downgrade of the country's credit rating would cause an interest rate rise.

The president's warning was reinforced by a threat from the ratings agency Standard & Poor's to strip the US of its AAA standing if no long-term political deal is reached to tackle government spending and debt.

As Obama and Republican leaders in Congress continued to wrangle over the terms for approving an increase in the US's $14.3 trillion (?8.9tn) debt ceiling by the 2 August deadline – with Republicans rejecting Obama's demand that tax increases for the wealthy accompany sharp budget cuts – the president warned ordinary Americans of the seriousness of the situation.

"This is not some abstract issue. These are obligations that the United States has taken on in the past. The Congress has run up the credit card and we now have an obligation to pay our bills. If we do not it could have a whole set of adverse consequences. We could end up with a situation, for example, where interest rates rise for everybody all throughout the country, effectively a tax increase on everybody," he said.

But Obama also told a White House press conference that while the situation was serious, it could be resolved. "We don't have to do anything radical to solve this problem. Contrary to what some folks say, we're not Greece, we're not Portugal.

"It turns out that our problem is we cut taxes without paying for them over the last decade ... We fought two wars. We didn't pay for them. We had a bad recession that required a recovery act and stimulus spending."

S&P, which follows Moody's in warning of a possible downgrading of the US's top credit rating, put America on negative watch on Thursday and said there was "at least a one-in-two likelihood" that it could downgrade its debt "by one or more notches ... if we conclude that Congress and the administration have not achieved a credible solution to the rising US government debt burden and are not likely to achieve one in the foreseeable future".

Obama said that political leaders "should not even be this close to a deadline on this issue", but he stood firm in his opposition to Republican plans for $2.4tn in immediate spending cuts. The president said to achieve that level of savings without added tax revenues would require the "gutting" of social programmes that he could not support. He said that when ordinary Americans are asked to contribute more to retirement and healthcare programmes, then "millionaires and billionaires can afford to do a bit more".

Republican leaders in the US Senate appeared to be edging closer to an emergency deal with Democrats that would permit the president to raise the debt ceiling unilaterally, but there was continued opposition from fiscal conservatives in the House of Representatives who view such an arrangement as a victory for the White House. Obama said that the Republicans had "boxed themselves in" with election commitments.

The Republican leadership in the House of Representatives said it won control of the lower house of Congress in last November's election with a mandate to sharply cut government spending without any increase in taxes.

The Tea Party movement and fiscal conservatives intend to hold newly elected House members to that commitment, and warn that any deal with the president that does not include deep cuts or permits tax increases will be viewed as a betrayal.

Obama described any temporary solution that did not tackle long-term spending problems as the least attractive option. "We have a unique opportunity to do something big. We have a chance to stabilise America's finances for a decade, for 15 years or 20 years, if we're willing to seize the moment," he said.

John Chambers, chairman of S&P's sovereign ratings committee, also warned that an interim solution of the kind under discussion in the Senate would not be good enough and that Washington must tackle the long-term debt issue. "If you get a small agreement, that will lead to a downgrade," he told Reuters.

View the original article here

Rupert Murdoch says sorry as crisis forces Rebekah Brooks out

Rupert Murdoch is escorted out of a hotel where he met the familly of murdered teenager Milly Dowler Photograph: Paul Hackett/Reuters

Rebekah Brooks finally resigned as chief executive of News International as the phone-hacking scandal engulfing News Corporation led Rupert Murdoch to issue an abject apology for what he described as "serious wrongdoing".

Less than 24 hours after insisting the company had made only "minor mistakes" in handling the crisis, a contrite Murdoch arranged a private meeting with the family of Milly Dowler and issued a full-page apology in every national newspaper for his company's behaviour.

The dramatic turn of events came 10 days after the Guardian first revealed that private investigators working for the News of the World had hacked into the phone of the murdered girl during a police investigation into her disappearance. The subsequent outrage and other evidence of wrongdoing has led to the closure of the 168-year-old newspaper, the scrapping of the Murdoch bid for BSkyB and the arrest of several former NoW executives.

Downing Street admitted that David Cameron hosted Andy Coulson at Chequers in March two months after his resignation as the Downing Street director of communications. Labour accused the prime minister of an "extraordinary lack of judgment" in extending an invitation to Coulson, who was arrested last week. The former NoW editor denies any knowledge of phone hacking.

The fallout from the scandal is placing intense pressure on Sir Paul Stephenson, the Met police commissioner. Cameron is said to be furious that Stephenson did not tell him he had hired Neil Wallis, the former NoW deputy editor arrested this week, to advise him on media relations. Stephenson has been asked to explain himself to Theresa May, the home secretary.

It was unclear what had prompted the Murdochs to accept the resignation of Brooks, a 22-year veteran of the company, after steadfastly standing by her in the face of calls for her to go from the leaders of all the main political parties, including the prime minister.

It is understood, however that the decision was not done overnight. Her departure was planned with military precision during a series of family summits and transatlantic phone calls with shareholders over the last few days. The resignation comes just four days before she is due to appear before parliament alongside Rupert and James Murdoch, chairman of News International, to answer questions about the scandal.

In her resignation statement, Brooks said she wanted to clear her name as well as the company's and focus on all "current and future inquiries". She added: "The reputation of the company we love so much, as well as the press freedoms we value so highly, are all at risk."

Hours after this statement, Rupert Murdoch met the parents and sister of Milly Dowler in a hotel in central London. "He was very humbled and very shaken and very sincere," said Mark Lewis, the Dowler family lawyer. "I think this was something that had hit him on a very personal level and was something that shouldn't have happened. He apologised many times. I don't think somebody could have held their head in their hands so many times and say that they were sorry."

Lewis said Milly's parents, Sally and Bob, and her sister, Gemma, had told Murdoch his newspapers "should lead the way to set the standard of honesty and decency in the field and not what had gone on before".

Murdoch had replied that the News of the World's actions were "not the standard set by his father, a respected journalist, not the standard set by his mother", Lewis said.

In a full-page apology in the Guardian and other newspapers today, the News Corp boss says: "We are sorry for the serious wrongdoing that occurred. We are deeply sorry for the hurt suffered by the individuals affected. We regret not acting faster to sort things out."

Such an admission represents a volte face after Murdoch praised the company's handling of the scandal in his first interview on the issue, given to one of his own newspapers, the Wall Street Journal.

The printed apology also suggests that the company will do more to atone for the mistakes of the past. "I realise that simply apologising is not enough," he writes. "In the coming days, as we take further concrete steps to resolve these issues and make amends for the damage they have caused, you will hear more from us."

In his own statement to staff at News International, which still owns the Times, the Sunday Times and the Sun, James Murdoch admitted that the company had made mistakes but praised "one of the outstanding editors of her generation".

Brooks is to be replaced by the head of Sky Italia, Tom Mockridge. Downing Street welcomed her resignation, which relieved some of the pressure on Cameron, who in effect called for her to go last Friday. But the prime minister's spokesman said Brooks should still give evidence to the media select committee next week.

He said of the resignation: "He thinks it's the right decision. He said the other day he would have accepted her resignation."

No 10 hopes that releasing details of the prime minister's contacts with the media and setting out the full scope of the judge-led inquiry will relieve the pressure on him as he attempts to regain the initiative. The prime minister hopes to finalise the membership of the inquiry and agree its terms of reference by the end of next week. But Labour believes that he will continue to face pressure until Coulson's position is clarified.

View the original article here