Threat of default overshadows U.S. shutdown

After weeks of gridlock, House Republicans floated broad hints Tuesday they might be willing to pass short-term legislation re-opening the government and averting a threatened default — in exchange for immediate talks with the Obama administration on measures to reduce deficits and change the nation’s three-year-old health-care law.

WASHINGTON — After weeks of gridlock, House Republicans floated broad hints Tuesday they might be willing to pass short-term legislation re-opening the government and averting a threatened default — in exchange for immediate talks with the Obama administration on measures to reduce deficits and change the nation’s three-year-old health-care law.

“I suspect we can work out a mechanism to raise the debt ceiling while a negotiation is underway,” said Rep. Tom Cole, an Oklahoma Republican, who is close to Speaker John Boehner.

“I want to have a conversation,” Boehner told reporters. “I’m not drawing lines in the sand. It is time for us to just sit down and resolve our differences.”

The White House responded with marginally less bellicose language of its own without yielding on its core demands in the latest test of divided government.

President Barack Obama told Boehner in a phone call he would be willing to negotiate “over policies that Republicans think would strengthen the country” once the eight-day partial shutdown was over and the threat of default eased.

The events unfolded as the stock market sank for the second day in a row. And in the latest in a string of dire warnings, the International Monetary Fund said failure to raise the $16.7 trillion borrowing limit later this month could lead to a U.S. government default that might disrupt global financial markets, raise interest rates and push the U.S economy back into recession.

Treasury Secretary Jacob Lew has said the deadline for Congress to act is Oct. 17, setting that as the day the government will exhaust its ability to borrow funds and will have to rely day-to-day on tax and other receipts to pay its bills.

In the Senate, Majority Leader Harry Reid readied legislation to raise the debt limit by roughly $1 trillion, enough to prevent a recurrence of the current showdown until after the 2014 elections.

It was unclear whether Senate Republicans would slow progress of the bill, which was shorn of all items that many GOP lawmakers favour to reduce deficits or delay the health overhaul, which takes effect more fully on Jan. 1.

Inside the Capitol, the threat of a default overshadowed the continuing partial government shutdown, in its eighth day with little or no talk of an immediate end. An estimated 450,000 federal workers are idled at agencies responsible for items as diverse as food inspection and national parks, although all employees are eventually expected to receive full back pay.

In the House, majority Republicans announced plans to pass legislation reopening Head Start, the pre-school program for disadvantaged children. It is the latest in a string of bills to end the shutdown in one corner of government or another in hopes of forcing Democrats to abandon their own demands for a full reopening of the federal establishment.

Republicans also announced they would vote to make sure federal workers on the job don’t miss their next regularly scheduled paycheque on Oct. 15.

In a potentially more significant political development, a third vote was expected on legislation to create a House-Senate working group on deficit reduction and economic growth. The 20-member panel would be empowered to recommend steps to raise the debt limit and reduce spending, including in so-called direct spending programs — a definition that appears broad enough to encompass benefit programs like Medicare and Social Security as well as the health care law that Republicans oppose.

The measure does not contain any provision to end the shutdown or raise the debt limit, although it could be amended to include them at a later date if a compromise emerges.

The shutdown began more than a week ago after Obama and Senate Democrats rejected Republican demands to defund “Obamacare,” then to delay it, and finally to force a one-year delay in the requirement for individuals to purchase health-care coverage or face a financial penalty.

It was not a course Boehner and the leadership had recommended — preferring a less confrontational approach and hoping to defer a showdown for the debt limit.

Their hand was forced by a strategy advanced by Texas Sen. Ted Cruz and tea party-aligned House members determined to eradicate the health-care law before it fully took root.

That portion of the strategy was doomed to failure, since money for the health care program was never cut off.

With the government partially shut down, Boehner and the GOP leadership decided to allow the closure showdown to merge with one over the debt limit.

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