WASHINGTON — Fuming lawmakers pointed fingers at one another and President Barack Obama on Thursday as negotiations over raising the national debt limit entered a perilous endgame. Federal Reserve Chairman Ben Bernanke warned of economic damage, and an anxious Wall Street envisioned catastrophe if the U.S. defaulted on its obligations.
Obama and congressional leaders were meeting again late in the day at the White House. But the president's blunt declaration that "enough is enough" as the previous evening's talks ended did nothing to quell the rancor as a new day of positioning and posturing played out.
Senate Majority Leader Harry Reid stood on the Senate floor Thursday and sniped that House Minority Leader Eric Cantor shouldn't even be part of the talks anymore, noting that the Virginia Republican has been called "childish." Not long after, Senate Republican Leader Mitch McConnell stood to serve notice that the debt problem belonged squarely in Obama's lap.
"Republicans will not be reduced to being the tax collectors for the Obama economy," McConnell said. "Don't expect any more cover from Republicans on it than you got on health care. None."
Federal Reserve Chairman Ben Bernanke, testifying on Capitol Hill, warned legislators that failing to raise the debt limit in time to avoid default would only end up increasing the federal deficit, calling that a "self-inflicted" wound.
He said default would drive up interest costs on the $14.3 trillion debt and reduce government revenues by slowing economic growth.
None of the back-and-forth was a promising prelude to negotiations scheduled to resume at the White House on Thursday afternoon, less than three weeks before an Aug. 2 deadline for increasing the government's borrowing authority. Thursday's talks were to focus on the touchy matters of how to cut spending on Medicare and Medicaid, and raising more tax revenue.
Behind the scenes, meanwhile, legislators and White House officials continued to work on a backup plan offered by McConnell to avoid government default.
Obama is demanding that budget negotiators find common ground by week's end, as the financial world watches with growing jitters.
"No one can tell me with certainty that a U.S. default wouldn't cause catastrophe and wouldn't severely damage the U.S. or global economy," Jamie Dimon, CEO of JPMorgan Chase & Co., told reporters Thursday. "And it would be irresponsible to take that chance."
Already, Moody's Investors Service is reviewing the government's credit rating, saying there is a small but rising risk that the government will default on its debt. If Moody's were to lower the rating, the consequences would ripple through the economy, pushing up rates for mortgages, car loans and other debts. A Chinese rating agency, Dagong Global Credit Rating Co., also warned of a possible downgrade.
Reid sketched the potential consequences of default in dire terms, saying Social Security checks, veterans benefits and paychecks for troops would stop. "Millions of Americans could lose their jobs," he added.
A Reid spokesman later clarified that Social Security benefits "could" stop, as Obama previously had warned, but it wouldn't be a certainty.
Republicans have called such statements scare tactics.
In the cauldron of the White House Cabinet Room, Obama and top lawmakers bargained for nearly two hours Wednesday. Obama curtly ended the session when Cantor, R-Va., urged him to accept a short, monthslong increase in debt instead of one that would last through next year's presidential election.
"Enough is enough. ... I'll see you all tomorrow," Obama said, rising from the negotiating table and leaving the room, according to several officials familiar with the session.
Reid said that while other Republican leaders were willing to negotiate in good faith, Cantor "has shown he shouldn't even be at the table."
The United States hit its current $14.3 trillion debt ceiling in May and the Obama administration says the government will default on its obligations if the debt limit is not increased by Aug. 2. For a new debt ceiling to last to the end of 2012 would require raising it by about $2.4 trillion.
Republicans, in control of the House of Representatives in part because of the support of tea party activists, say they will not vote to raise the limit if Obama doesn't agree to at least an equal amount of deficit reductions over 10 years.
Obama and the top eight House and Senate leaders met for the fourth time in as many days Wednesday, and, despite the tense ending, agreed to meet again Thursday.
A congressional aide said the White House discussed with lawmakers the possibility of moving talks this weekend to the presidential retreat at Camp David in Maryland. But a spokesman for House Speaker John Boehner said the Ohio Republican told the White House he saw no need for that. And Obama aides later said they planned to continue holding meetings at the White House for the next few days.
Despite McConnell's assertions that the debt problem belongs to Obama, fresh polling from Quinnipiac University suggested voters would be more apt to hold Republicans responsible than Obama, by 48 percent to 34 percent, if the debt limit is not raised. The same survey showed voters were about evenly split on whether they're more concerned about raising the limit and increasing government debt, or seeing the government go into default and damaging the economy.
"The American people aren't very happy about their leaders, but President Barack Obama is viewed as the best of the worst, especially when it comes to the economy," said Peter Brown, assistant director of Quinnipiac's Polling Institute.
That helps explain why McConnell put forward a plan that would give Obama new powers to overcome Republican opposition to raising the debt ceiling.
The proposal would place the burden on Obama to win debt ceiling increases up to three times, provided he was able to override congressional vetoes — a threshold Obama could manage to overcome even without a single Republican vote and without massive spending cuts. Conservatives promptly criticized the plan for giving up the leverage to reduce deficits. But the plan raised the prospect of combining it with some of the spending cuts already identified by the White House in order to win support from conservatives in the House.
In an interview with radio talk-show host Laura Ingraham, McConnell described his plan in stark political terms, warning fellow conservatives that failure to raise the debt limit would probably ensure Obama's re-election in 2012. He predicted that a default would allow Obama to argue that Republicans were making the economy worse.
"You know, it's an argument he has a good chance of winning, and all of a sudden we (Republicans) have co-ownership of a bad economy," McConnell said. "That's a very bad positioning going into an election."
Sen. Charles Schumer, D-N.Y., said that while the president and other Democrats would still prefer a larger agreement, McConnell's plan was an acceptable option — especially if some consensus spending cuts were added. He said McConnell and Reid were discussing the idea.
Democratic officials said that even as Obama confronted Cantor and Boehner in Wednesday's meeting, he commended McConnell.
"Sen. McConnell at least has put forth a proposal," a Democratic official quoted the president as saying. "It doesn't reduce the deficit and that's what we have to do. It just deals with the debt limit. Now Sen. McConnell wants me to wear the jacket for that."
The officials said Obama went on to say they all had a responsibility to find a compromise.
Associated Press writers Dave Espo, Laurie Kellman, Ben Feller, Julie Pace, Martin Crutsinger and Erica Werner in Washington and Pallavi Gogoi in New York contributed to this report.