Republicans offered a new approach on Tuesday to resolve the U.S. fiscal standoff, proposing creation of a bipartisan panel to work on deficit reduction and find ways to end the government shutdown and make recommendations on a debt-limit increase.
The proposal, which was quickly dismissed by Democrats, came as House of Representatives Speaker John Boehner and President Barack Obama spoke by telephone shortly after Boehner adopted a slightly more conciliatory tone in comments to reporters.
“There are no boundaries here. There’s nothing on the table, there’s nothing off the table,” Boehner said after a meeting with House Republicans, making no mention of his recent demands to delay parts of Obama’s healthcare law in return for approving funds to end the government shutdown.
In their phone call, Obama said he would be willing to negotiate with Republicans once the U.S. government is re-opened and the threat of a default is lifted, the White House said.
The events offered rays of hope in a bitter fiscal stalemate that has shut down the federal government for eight days and threatens to prevent the raising of the country’s $16.7 trillion borrowing limit before an Oct. 17 deadline.
The possibility the government could default on its debt raised fears of potential global economic havoc, with foreign creditors and the International Monetary Fund’s chief economist warning of the potential consequences.
“I think what could be said is if there was a problem lifting the debt ceiling, it could well be that what is now a recovery would turn into a recession or even worse,” IMF chief economist Olivier Blanchard said.
Investors remain skeptical the parties are ready to resolve the standoff and are exhibiting increasing anxiety as the deadline for raising the debt ceiling approaches.
One of the stock market’s most closely watched measures of investor nervousness, the Chicago Board Options Exchange Volatility Index, on Tuesday surged to its highest level since late June. The Standard & Poor’s 500 index was down 0.75 percent in early afternoon trading.
In the U.S. Treasury market, a sale of $30 billion of 1-month bills maturing Nov. 7, not long after the government is estimated to run out of cash to meet its obligations unless the debt ceiling is raised, met with the weakest demand in more than four years.
Japan’s finance minister said a failure by the United States to quickly resolve its political deadlock over government finances could damage the global economy.
“The U.S. must avoid a situation where it cannot pay (for its debt) and its triple-A ranking plunges all of a sudden,” Japanese Finance Minister Taro Aso told reporters after a cabinet meeting.
“The U.S. must be fully aware that if that happens, the U.S. would fall into fiscal crisis,” he said in the latest sign that Japan and China, the biggest foreign creditors to the United States, are worried the fiscal crisis could harm their trillions of dollars of investments in U.S. Treasury bonds.
But plenty of obstacles remain. U.S. Senate Democrats plan to introduce a bill this week to raise the government’s borrowing authority by enough to last through 2014.
The measure, which must be discussed among Senate Democrats at a luncheon meeting on Tuesday, would not contain any of the deficit reductions that Republicans have demanded, a Senate Democratic aide said.
House Republicans emerged from their meeting saying they would insist that deficit-reduction talks with Obama as a condition for raising the federal debt limit.
Republican Representative Tom Cole of Oklahoma said it was important to get negotiations underway with Democrats. “If we have a negotiation and a framework set up, we can probably reach a way to raise the debt ceiling while the negotiation is in progress. But nobody is going to raise it before there is a negotiation,” he said.
Republican leaders also unveiled the proposal for a 20-member committee to make recommendations on a debt limit increase and look at ways to rein in the country’s deficits.
Under the legislation, the Republican House would name 10 members to the panel while the Democratic-led Senate would name the other 10. The panel would also make recommendations on a measure to fund the government for the 2014 fiscal year, ending the shutdown.
The plan is reminiscent of a failed 2011 “supercommittee” of Republicans and Democrats from the House and Senate that was asked to find trillions of new budget savings.
House Democrats, speaking to reporters, said they would reject the creation of such a panel. They want the government to reopen and the debt limit raised before entering any deficit-reduction negotiations.
Some House Republicans dismissed the prospect of a first-ever default.
“There’s no way to default. There is enough money coming into the Treasury to pay interest and roll over principle,” said Representative Justin Amash of Michigan, a favorite of the smaller-government Tea Party wing of the Republican Party.
Asked about warnings of catastrophic consequences if the debt limit is not increased, Amash told reporters: “I say it’s patently not true what they are saying.”
In the Senate, a Democratic aide said Democrats were hopeful they could get the 60 votes needed to overcome procedural hurdles in the 100-member Senate and pass a debt ceiling bill with no strings attached.
The measure would likely run into opposition from Senate Republicans such as Ted Cruz of Texas, who has been leading the drive to make delaying Obama’s healthcare law a condition for raising the debt ceiling.
Considering the procedural roadblocks it could face, aides said they need to begin work on the legislation well before Oct. 17, when Treasury Secretary Jack Lew has said the government will run out of borrowing authority.