US debt crisis: Speaker delays vote as Republicans fight over spending bill
Markets increasingly nervous as US political parties remain deadlocked on strategy to tackle economic crisis
The US debt crisis worsened on Thursday when a proposed Congressional vote exposed the extent of divisions within the Republican party.
The Republican leader in the House, John Boehner, highlighted the extent of the chaos that was engulfing Washington when he scheduled a vote for 6pm (Eastern Time) on a new bill. The proposed legislation would raise the $14.3tn (8.7tn) debt ceiling in return for billions of dollars in spending.
But the House Speaker met fierce resistance from hardline Republican conservatives who demanded even more spending cuts. To the embarrassment of Boehner, he had to postpone the vote for hours as he tried to round up enough Republicans to pass his bill.
The chaotic scenes in the House added to a sense that the chances of securing a compromise on debt ahead of the 2 August deadline were diminishing, with Republican conservatives, backed by the Tea Party movement, becoming more entrenched.
With time running out, the White House is beginning to make emergency plans for 2 August to avoid the US defaulting on its borrowing for the first time in its history, a move that could throw the US and world economy into turmoil.
Earlier in the day, the White House said that it would veto Boehner's bill. Democrats, who control the Senate, said they too would kill it. The White House spokesman, Jay Carney, told a press conference that the bill would be "dead on arrival" at the Senate. Fifty one Democratic members of the Senate, a majority, published a letter pledging to vote against the House bill.
Democrats in the Senate are meanwhile preparing a bill of their own, but the chances are Republicans in the House would vote that down too.
Global markets, initially sanguine about the crisis and confident of an eventual compromise, were increasingly jittery. There were early market falls but US stocks gained and the dollar rose during ! the day, buoyed by unexpectedly good unemployment figures.
The Democratic leader in the Senate, Harry Reid, warned: "Default will rock our financial system to its core." He expressed hope that there could still be a deal. "Magic things can happen here in Congress in a very short period of time under the right circumstances," he said.
The White House also expressed optimism a compromise could be reached.
Negotiations are continuing in private between the White House and senior Republicans and Democrats on a possible short-term emergency deal. But Carney admitted that, in the event there is no deal, the treasury would explain its plans in detail before 2 August.
Carney said: "As we get closer to that date, the treasury will explain how it will manage a situation that is impossible." He acknowledged for the first time that the uncertainty was already causing harm to the US economy.
The White House will almost certainly make its priority paying interest on its debts, so that the US does not default for the first time in its history. But the consequence could be delaying monthly payments to federal workers, soldiers and other employees, and also millions of cheques to social security recipients, veterans and others.
The treasury said it would release details in the coming days regarding which payments would take priority over others. It makes an average of 80m payments a month.
It also said it would go ahead with its regular weekly auction of three-month and six-month treasury bills on Monday a day before the deadline. The money raised from that auction will go towards redeeming $87m in securities that will mature on 4 August. The treasury said that operation would not breach the current borrowing limit.
Treasury secretary Timothy Geithner has said that, after Tuesday, he will have exhausted all the manoeuvres he can use to clear room under the current $14.3tn borrowing limit. The government reached its borrowing limit in May. The US needs to borrow $125bn in new debt ! each mon th, in addition to $500bn in maturing debt that it must refinance each month.
The debt debate is creating bitter divisions inside the Republican party, between the newer members of Congress elected last November with the support of the Tea Party movement, which campaigned for deep spending cuts, and older members used to reaching compromises with their Democratic counterparts.
Senator John McCain, the party's presidential candidate against Obama in 2008, labelled as "bizarro" the hardline colleagues in the House who had been in Congress for only seven months.
But one of the hardliners, Congressman Joe Walsh, who is aligned with the Tea Party movement, hit back that McCain had "been in this town too long" and had helped get the US into the mess.
In the Senate, another conservative, Jim DeMint, who is closely allied to the Tea Party movement, warned that he would filibuster any Senate bill that offered only a short-term solution without significant spending cuts.
A White House adviser, David Plouffe, in an interview with MSNBC, suggested one way out of the impasse would be to amalgamate the House and Senate bills.
"What you're going to have to do is reconcile what's in Reid and Boehner, which is a lot of the things the president has talked about in terms of spending cuts he'd be willing to accept. And that's where the compromise is," Plouffe said.
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