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Obama calls new crisis debt talks

WASHINGTON, July 20, 2011 (AFP) – US President Barack Obama on Wednesday called his top Democratic allies and Republican foes to separate White House talks to hammer out a compromise that would avert a disastrous debt default.

With an August 2 deadline looming, White House spokesman Jay Carney said Obama would accept a short-term deal to raise the debt ceiling but only to buy time as part of a broader arrangement to slash the ballooning US deficit.

“We would not support a short-term extension absent an agreement to a larger deal,” said Carney, who specified later that he was referring to a stopgap lasting “a few days” if necessary to pass sweeping legislation.

The president in the past had rejected short-term measures, insisting on raising the $14.3 trillion US debt limit by enough to avoid another politically painful vote before his November 2012 re-election bid.

Obama was to meet Democratic Senate Majority Leader Harry Reid and House Democratic Minority Leader Nancy Pelosi, and then Republican House Speaker John Boehner and Republican House Majority Leader Eric Cantor, said Carney.

“We need to meet, talk, consult, narrow down what our options are and figure out, in fairly short order, you know, which train we’re riding into the station,” said the spokesman.

“There is still time to do something significant if all parties are willing to compromise” on a “balanced” approach, he said, using Obama’s term for a broad deal coupling spending cuts, including on social safety net programs dear to Democrats, with tax hikes on the rich, which Republicans have thus far opposed.

Largest US creditor China renewed its warning that Washington must protect investor interests.

“We hope the US government will take responsible measures to boost confidence of the international financial markets, respect and protect investor interests,” its State Administration of Foreign Exchange said in a statement.

Washington hit its debt ceiling on May 16 and has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to pay its bills and continue operating normally, but can only do so until August 2.

Finance and business leaders have warned failure to raise the US debt ceiling by then could send shock waves through a world economy still reeling from the 2008 collapse, while Obama has predicted economic “Armageddon.”

Obama did a round of interviews with media anchored in California, Ohio, and Missouri—states critical to his reelection efforts—that the White House billed as a defense of his handling of the economy and the debt battle.

And pressure rose for a breakthrough as Wall Street giant Goldman Sachs warned in a new analysis that the dispute appeared to be frightening US consumers into pulling back spending, a key engine of economic growth.

Goldman cited the University of Michigan consumer sentiment index, which plunged unexpectedly in its early July reading, as well as data showing sluggish consumer spending so far this year.

While that drop could be due to other factors, the investment giant said, “the extent, timing and composition suggests that the uncertainty surrounding the debt ceiling is probably a contributing factor.”

And while Goldman predicted a final deal would be reached, it also warned “any self-inflicted wounds are particularly unwelcome” with the US economy already operation at “stall speed.”

Carney had warm words again for a new deficit-cutting plan by a bipartisan “Gang of Six” senators that aims to slash the swollen US budget deficit by some $3.7 trillion over 10 years and boost revenues by $1 trillion by closing tax loopholes and ending some tax breaks.

“That is a significant deal, and it is worth being enthusiastic about,” he said one day after Obama said the plan, which drew a cool welcome from key lawmakers, broadly reflected his own preferred approach.

But Carney also emphasized the need for a “fall-back” option, referring a plan being crafted by Reid and Republican Senate Minority Leader Mitch McConnell that would let the president raise the debt ceiling by $2.5 trillion in three increments through 2012 with just Democratic votes.

Republicans have hammered Obama for his handling of the US economy, which still faces historically high unemployment of about 9.2 percent as it struggles to recover from the worst recession since the Great Depression of the 1930s.

But polls show that US voters more likely to blame Republicans than Obama for a default and are still reluctant to blame the president for sluggish growth and high unemployment.

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