<div><div class="articlePage" readability="81"><h3 class="byline">By <a href="/search/term.html?KEYWORDS=CAROL+E.+LEE&bylinesearch=fair">CAROL E. LEE</a> And <a href="/search/term.html?KEYWORDS=JANET+HOOK&bylinesearch=fair">JANET HOOK</a>
</h3><p>A backup plot to divide the federal deficit and keep the U.S. administration from default gained momentum Thursday much as President Barack Obama and congressional leaders paused their negotiations to determine if they can reach a deal.</p>
<p>Ratcheting higher the pressure on Washington to strike a deal, Average & Poor’s for the first age said there was a 50% chance it would downgrade its rating of extended-term U.S. debt within three months since the chances of default were "increasing" and the political debate about deficit reduction and the debt ceiling had "only become more entangled." The U.S. has had a AAA bond-rating from S&P for 70 years.</p>
<p>The so-called Plot B is taking shape in silent discussions between Senate Majority Leader Harry Reid (D., Nev.) and Republican leader Mitch McConnell (R., Ky.), away from miserable House Republicans who don’t favor the approach.</p>
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<cite>Reuters</cite>
<p class="targetCaption">Senate Majority Leader Harry Reid speaks to the media following to U.S. Treasury Secretary Timothy Geithner after their meeting about the debt limit on Capitol Hill in Washington on Thursday.</p>
</div></div></div><p>It would link a package of spending cuts to a plot Mr. McConnell proposed earlier this week that would give the president the ability to raise the debt limit through 2012 in three installments, unless two-thirds of Congress voted to block it. It likely wouldn’t comprehend any tax increases, a senior Democratic aide familiar with the discussions said.</p>
<p>Messrs. McConnell and Reid are also exploring the thought of making a committee to identify further deficit-reduction measures and energy a congressional ballot on the package. The mechanism would be alike to the commission once established by Congress to constitute politically dense choices to close military bases.</p>
<p>The thoughts face enormous political and procedural hurdles, exceptionally in the House where conservatives are determined to keep pressing for deeper spending cuts, and much Senate leaders affirm they are far from finding the middle ground they seek. However the effort has gained traction as age is running outside to reach a deficit-reduction deal by Aug. 2, when the Treasury Department says the U.S. administration will run outside of cash to pay its bills.</p>
<p>Mr. Obama and top lawmakers gathered at the White House Thursday for a fifth day of talks aimed at reaching an agreement that Republicans have linked to any increase in the administration’s $14.29 trillion borrowing limit. </p>
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<h3 class="first">Hitting the Ceiling</h3>
<p>See what the federal debt limit has been at year-end since 1940.</p>
</div></div><p>After spending an hour and 20 minutes sifting through potential savings in entitlement programs and through tax increases, Mr. Obama suggested leaders go back to their members and figure outside by Saturday what kind of a deal is imaginable, a Democratic official familiar with the meeting said.</p>
<p>"If he hasn’t heard back from them with a plot of action in that age frame, he may call another meeting for the weekend," the Democratic official said.</p>
<p>What is emerging as the most likely outcome is a plot based on Messrs. McConnell and Reid’s employment, a Democratic official familiar with negotiations said. It would comprehend roughly $1 trillion in deficit reduction, however would not come with tax increases or Medicare savings, the official said. It could comprehend an extension of unemployment insurance, the official said, which costs $40 billion and would be offset by spending cuts.</p>
<p>Mr. Obama suggested in Thursday’s meeting that leaders end tax breaks for ethanol producers, oil and gas companies and corporate jet owners, and offset those tax increases with an extension of the payroll tax credit for employees, a Democratic official familiar with the meeting said, however Republicans said they would not support it.</p>
<p>Mr. Obama said he still prefers a larger plot, however the only path to get much to a $2 trillion deal is to comprehend tax increases, which Republicans flatly oppose, or Medicare cuts, which Democrats oppose without concessions from Republicans on taxes. Mr. Obama will hold a news conference Friday morning.</p>
<p>The signs of a potential endgame crafted by Senate leaders come after a week of tense meetings. Earlier Thursday, Mr. Reid said House Majority Leader Eric Cantor (R., Va.), who had a heated exchange with Mr. Obama in Wednesday’s session, "has shown that he shouldn’t much be at the table" in negotiations.</p>
<p>Mr. Cantor has presented the most vocal and determined GOP voice of opposition to tax increases in the White House talks, and was seen as a key energy in derailing House Speaker John Boehner’s efforts to craft a major deficit-cutting deal with Mr. Obama. A Cantor spokeswoman responded to Mr. Reid by saying, "This isn’t a inquiry about personalities." </p>
<p>Mr. Cantor remained silent at Thursday’s more businesslike session, according to aides briefed on the meeting.</p>
<p>Administration officials affirm leaders demand to reach an agreement by the end of following week to get a bill passed before Aug. 2.</p>
<p>Washington’s paralysis is stoking concern encircling the earth over whether policy makers will act soon enough. The recent warnings from ratings firms—Temperamental’s Investors Services’ said on Wednesday that it is reviewing U.S. administration debt for a imaginable downgrade—are significant since they can propel the decisions of investors. </p>
<p>S&P said Thursday that much if lawmakers and the White House reached a small-term deal to raise the debt ceiling, it could still downgrade extended-term U.S. debt if it felt "prospect adjustments to the debt ceiling are likely to be the subject of political maneuvering." </p>
<p>For China, which has the earth’s largest pile of foreign exchange at $3 trillion—an estimated two-thirds of it in dollars—the inability to resolve the debt-ceiling dispute, and the longer-term deficit difficulty, is exceptionally worrisome. </p>
<p>China has extended talked of diversifying, and officials have said in the past year that Beijing has bought more European debt.</p>
<p>"We hope the U.S. administration adopts responsible policies to protect the interests of investors," said Chinese Foreign Ministry spokesman Hong Lei, whose administration held at least $1.152 trillion in Treasury securities as of April, and is the U.S. administration’s largest creditor.</p>
<p>Mr. McConnell’s plot will have its first check Friday when House Republicans hold a caucus meeting. They rejected the thought when he proposed it Tuesday without spending cuts attached, prompting Mr. Boehner to declare that it couldn’t pass the chamber.</p>
<p>On Thursday, Mr. Boehner opened the door to Mr. McConnell’s proposal. "What may gaze like something less than optimal today, if we’re unable to get an agreement, it might gaze attractive excellent a couple weeks from immediately," Mr. Boehner said. </p>
<p>In a Thursday radio interview with conservative talk exhibit host Hugh Hewitt, Mr. McConnell said he wanted to included in his legislation a provision establishing a special congressional committee—made up equally of Democrats and Republicans from both the House and Senate—that would identify entitlement savings to reduce the deficit. It would be required to report back by the end of the year and its findings would be brought before the House and Senate on an "expedited” basis.Mr. McConnell suggested the legislation to give the president authority to raise the debt limit would be passed first by the Senate, then sent to the House, and comprehend spending cuts that emerge from the White House negotiations. "The key is, will the president assent to something the House Republican majority will pass,” he said. </p>
<p>During their Wednesday meeting, Mr. Obama commended Mr. McConnell for his proposal, Democratic officials familiar with the meeting said. He also didn’t bristle at the notion of being responsible for raising the debt ceiling. "If Senator McConnell wants me to wear the jacket for that, I’m pleased to wear the jacket," Mr. Obama said, according to the Democratic officials. </p>
<cite class="tagline">—Damian Paletta
<br />
and William Kazer
<br />
contributed to this article.</cite><!– article end –>
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