WASHINGTON: Spurred on by President Barack Obama, US lawmakers on Saturday dove into a frantic beat-the-clock weekend effort to avert a debt default that could plunge the world economy into recession.
In a grim warning of what may come if there is no breakthrough by a midnight Tuesday deadline, US markets fell for a fifth straight day on Friday - a month of gains wiped out in a week due to poor US growth and the political stalemate.
“We are almost out of time. We need to reach a compromise by Tuesday so that our country will have the ability to pay its bills on time, as we always have,” Obama said in an appeal for Republicans and Democrats to carve out a deal.
The US economy hit its dollar 14.3 trillion debt ceiling on May 16 and has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally - but can only do so through Tuesday.
Business and finance leaders have warned that default would send crippling aftershocks through the fragile US economy, still wrestling with stubbornly high unemployment in the wake of the 2008 global meltdown.
The Republican-held House of Representatives late Friday passed Speaker John Boehner's bill to avert a default, but within two hours it had been rejected by 59-41 votes in the Democratic-led Senate.
Twenty-two House Republicans had joined all 188 Democrats voting against Boehner's legislation, while 218 Republicans backed it - eking out the 216 votes needed for passage.
Democratic Senate Majority Leader Harry Reid said he hoped Republican Senate Minority Leader Mitch McConnell would now help work out a final deal - the outlines of which were far from clear with the clock ticking down.
White House spokesman Jay Carney derided the House vote as “a political exercise” and pressed lawmakers to “start working together immediately to reach a compromise” that avoids default while reining in the galloping US deficit.
McConnell accused Democrats of “ginning up opposition to everything” Republicans offer - but declared, “I eagerly await the majority leader's plan for preventing this crisis.”
A key sticking point was the duration of any debt limit increase: Reid rejected Boehner's plan in large part because it would set the stage for another high-stakes showdown in a few months.
“We cannot be in this battle all the time,” said Reid, whose own plan aimed to spare Obama another politically fraught debt battle as he seeks a second term in the November 2012 elections.
Boehner's bill had sought to pair raising the debt ceiling by dollar 900 billion with spending cuts of some dollar 917 billion over 10 years, while requiring later debt limit increases be tied to congressional passage of a balanced budget amendment to the US Constitution for ratification by the 50 states.
Reid, whose Democrats oppose tying the debt limit to such an amendment, has offered a blueprint that would raise the debt ceiling by dollar 2.4 trillion while cutting spending by some dollar 2.4 trillion over 10 years.
And he grafted onto his bill a two-week-old “backup plan” mechanism by McConnell that would effectively allow Obama to raise the debt limit by that amount in three steps with only Democratic votes.
Reid also moved to set up procedural votes on the road to final Senate passage of a compromise on Monday or Tuesday - if a deal emerges out of the angrily partisan chamber, where Republicans can block legislation.
That would leave it up to the bitterly divided House to take the final step, a vote that would require Democrats and Republicans to pass the legislation in a down-to-the-wire endgame with unprecedented financial stakes.
A new poll by the respected Gallup organization suggested the standoff was hurting Obama's job approval ratings, which slumped to a personal low of 40 per cent, down from 50 per cent as of June 7.
In more bad news for the US economy, struggling to recover from the 2008 financial crisis, government data released Friday showed economic growth had nearly stalled in the first half.
The US economy grew at a dead-pace 0.4 per cent in the first quarter and only 1.3 per cent in the second quarter of 2011, the Commerce Department said.