House Speaker John Boehner broke off talks with President Barack Obama on Friday on a deficit-reductionÂ dealÂ to prevent a devastating default, derailing efforts to strike a sweeping agreement.
With the deadline just 11 days away for Congress to raise the federal government’s borrowing limit, a stern-faced Obama expressed frustration at the Republican leader’s move, saying it was “hard to understand why Speaker Boehner would walk away from this kind of deal.”
Boehner, in a letter to fellow lawmakers, said the talks fell through because he and Obama, a Democrat, had “different visions for our country.” Boehner said he would now try to hammer out a deal with the Democratic-controlled Senate.
A deep divide over tax revenue undermined the negotiations, ending an ambitious bid to craft a $3 trillion deficit-cutting plan that now seems beyond reach.
“If not reversed within the next few days through crisis negotiations, this breakdown will be highly detrimental to the already fragile health of both the U.S. and global economies,” Mohamed El-Erian, co-chief investment officer at Pacific Investment Management Co, which oversees $1.2 trillion in assets, told Reuters.
With the August 2 deadline fast approaching to increase the $14.3 trillion debt ceiling, Boehner said he would begin talks with Senate leaders “in an effort to find a path forward.” An aide said a deal needs to be set by Monday.
But a senior White House official warned the United States now faces the “very real prospect” that its top-notch credit rating will be downgraded for failing to control the deficit.
“We have now run out of time,” Obama told reporters.
The president insisted he made an “extraordinarily fair” offer to Boehner but when the Republican stopped returning his calls on Friday it became clear that he would not accept it.
“Where is the leadership?” Obama asked angrily.
Obama said summoned Democratic and Republican leaders to the White House on Saturday in a last-ditch effort to find a way to raise the debt limit. Boehner said he would attend.
“I expect them to have an answer in terms of how they intend to get this thing done over the course of the next week,” Obama said.
Failure to act could push the United States back into recession and unleash global financial chaos.
Putting the onus on Obama, Boehner said: “The president is emphatic that taxes have to be raised. As a former small businessman, I know tax increases destroy jobs.”
Boehner said he was confident Congress would act next week to raise the debt ceiling but to do so will require overcoming resistance from Tea Party conservatives in his own party.
Investors are still betting Washington will raise the debt ceiling in time butÂ marketsÂ are getting edgier.
“The longer they draw this out and closer we get to the 11th hour, the more possibility there is that there will be a signal from the bond market in the form of yields rising as people become more and more concerned it doesn’t get through,” said Scott Carmack, assistant portfolio manager at Leader Capital in Portland, Oregon.
The breakdown came after Obama said earlier on Friday he was prepared to make “tough choices” for a sweeping deficit-reduction deal to avert a default, despite Democrats warning him not to make too many concessions.
The president at the time appealed for compromise by both parties as he and Boehner, the top Republican in Congress, pursued a plan for up to $3 trillion in spending cuts.
Obama had faced increasingly vocal complaints from his own Democrats on a deal-in-the-making that could mean painful curbs in popular health and retirement programs but no immediate increase in taxes.
Republicans have refused to accept a deal for raising the debt limit if it includes revenue increases.
Attention now turns to the Senate, where negotiations are likely to resume on revisions to a convoluted plan put forth by Republican Senate leader Mitch McConnell.
Originally intended as a fallback option if all else failed, it calls for Obama to get the authority and the blame for raising the debt ceiling in three phases before the November 2012 election when he is running for re-election.
(Additional reporting by Andy Sullivan,Â Thomas Ferraro,Â Donna Smith,Â Richard Cowan,Â Steve Holland,Â Alister Bull,Â Laura MacInnisÂ andÂ Rachelle Younglai, and by Jennifer Ablan andÂ Daniel BasesÂ in New York; Writing by Matt Spetalnick andÂ Kristin Roberts; Editing byÂ John O’Callaghan)