By Sam Mamudi, MarketWatch
NEW YORK (MarketWatch) — As Senate leaders struggled Saturday to come up with a compromise bill to raise the debt limit, President Barack Obama restated his call for a deal and once again warned of the consequences of a U.S. default.
With the world focused on events in Washington, D.C., there were few developments at the start of the weekend other than the president's renewed effort to pile on the pressure to make a deal to raise the $14.2 trillion debt limit.
"We need to reach a compromise by Tuesday so that our country will have the ability to pay its bills on time," said Obama in his weekly address.
Repeating a line from his Friday morning speech, Obama added, "If we don't, for the first time ever, we could lose our country's Triple A credit rating. Not because we didn't have the capacity to pay our bills — we do — but because we didn't have a Triple A political system to match it."
Administration officials, economists and business leaders have warned of economic repercussions at home and around the world if the U.S. defaults.
Senate tables Boehner's debt bill
On a 59-41 vote, The Democratic-controlled Senate placed Republicans House Speaker Boehner's legislation on hold. Senate Majority Leader Harry Reid was expected to develop a different debt-limit approach. Video courtesy of Fox News. Image courtesy of Reuters.
Late Friday, the House of Representatives on a 218-210 vote, passed a Republican bill assembled by Speaker John Boehner (R., Ohio) that included provisions for a balanced budget. The bill was swiftly shot down in the Senate, where hopes for an agreement now lie.
Press reports Saturday morning suggested that the tone between the parties even in the Senate remained rancorous, with little or no sign of progress.
"Look, the parties are not that far apart here," said Obama in his address. "We're in rough agreement on how much spending we need to cut to reduce our deficit. We agree on a process to tackle tax reform and entitlement reform. There are plenty of ways out of this mess. But there is very little time."
Finding a compromise
Reports on Friday suggested that a compromise could soon be reached in the Senate using a plan devised by Majority Leader Harry Reid of Utah. Reid's plan would shave off more than $2 trillion in government spending in the next 10 years and raise the debt limit by about $2.4 trillion — an amount that would mean no further debt-limit adjustments until after the 2012 election in which Obama is running for a second term.
The plan passed by the House and authored by Boehner would lift the limit by $900 billion and cut about the same amount in spending, but require Congress to pass a balanced-budget amendment before the limit would be raised again. Democrats have signaled that any plan that doesn't resolve the debt ceiling issue until 2013 at the earliest is unacceptable.
The debt limit had until recently been part of a so-called grand bargain that Obama was hoping to strike with Republicans to put the country's finances on a long-term sure footing. But the GOP's resistance to any revenue increases quashed hopes for such a deal and refocused lawmakers' attention solely on the debt limit.
Boehner: 'We tried our level best'
Speaker John Boehner tells the American people that Republicans did their best to resolve the debt-ceiling crisis. Courtesy Fox News.
But evidence of how difficult an agreement even in this one area will be was delivered on Thursday night when Boehner postponed the vote on his bill after a revolt from the right wing of his party. It was only after the balanced-budget requirement was added to the bill that it passed, and even then 22 House Republicans voted against the plan.
The divisions on Capitol Hill have already taken their toll on the U.S. economy. The S&P 500 Index /quotes/zigman/3870025 SPX -0.65% and Dow Jones Industrial Average /quotes/zigman/627449/delayed DJIA -0.79% both saw their biggest weekly drops in more than year, falling about 4%. Read about the falls in Market Snapshot.
Market turmoil was further highlighted by the fact that Treasury yields on Friday saw their biggest fall of the year. Read about falling Treasury yields.
And the flight to safety is also seeing heavy withdrawals from money-market funds and into bank deposit accounts, according to Saturday's Wall Street Journal. Read about the flight to cash.
The Tuesday deadline imposed by the administration and expected uncertainty before it's reached will also affect the stock market in the coming week. Read about the week ahead.
Sam Mamudi is a reporter for MarketWatch, based in New York
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