Republicans race to revive debt plan

It isn't easy to turn Washington around on a dime. If nothing else, give Republican House Speaker John Boehner marks for trying.

It wasn't a week ago that Mr. Boehner was plodding through White House deliberations, grasping for GOP support, facing the growing likelihood his party would be saddled with either a flawed debt bargain or blame for causing a default. By last night, Mr. Boehner was on the precipice of passing the only workable debt plan in town and shifting responsibility for further debt fallout across the aisle. Whatever the final result, Mr. Boehner's week-long struggle to pull his party behind him is worthy of some study.

That struggle began with the Ohio Republican's willingness to pack in a losing strategy. He'd invested valuable time and capital in his White House talks, and the pressure from the president, the press and the bipartisan crowd to grab a "big deal" was enormous. He looked very near to succumbing to the seductive pull of a grand Washington "compromise."

Instead, he realized that this White House had no intention of agreeing to serious debt reduction and that it cared primarily about tax hikes. His decision to call off the talks earned him some catcalls, but it reset the political dynamic.

For weeks, House Republicans had feared their only choice would be between a problematic Boehner-Obama deal or their principles. Many had chosen to risk default in the name of the latter. By outing the White House and pushing a legitimate Republican alternative, Mr. Boehner gave his members a new choice: They could rally behind their leader for a deal that was good (if not perfect), or they could hand victory to President Obama.

President Obama took it from there. His week of lashing out at the GOP—in a press conference, in a national address, in a veto threat—only clarified the stakes for members and began earning Mr. Boehner standing ovations. The desperate quality of the Democratic attacks confirmed for House Republicans that the speaker was on to something. His blunt warnings about the political fallout of default helped further focus minds, while Senate Minority Leader Mitch McConnell's support for the Boehner plan reassured House members that he'd back them in the Senate.

As the largest foreign creditor to the United States, Beijing has repeatedly urged Washington to protect its dollar investments, which are estimated to account for about 70 percent of its $3.2 trillion in foreign exchange reserves.

Boehner's plan, which would cut spending by about $900 billion and raise the debt ceiling for a few months, is sure to be rejected by the Democratic-controlled Senate but could factor into an eventual compromise.

His inability to win quick passage in the Republican-run House could weaken his position at the bargaining table.

Top Senate Democrat Harry Reid wants to raise the debt ceiling by enough to kick the crisis beyond the November 2012 presidential election.

Reid indicated late on Thursday that he may advance his own bill, which cuts spending by $2.2 trillion over 10 years, in the Senate rather than use Boehner's proposal as the basis for a compromise.

REPUBLICAN MEETING

House Republicans were due to meet at 10 a.m. (1400 GMT) on Friday to discuss a way forward after last-minute arm-twisting by Boehner failed to overcome opposition within his party and forced him to abandon a planned vote on Thursday night.

The setback raised doubt over his ability to deliver enough votes in any compromise deal with the Senate.

Lawmakers continued to throw blame at each other, with Democrats accusing Republicans aligned with the fiscally conservative Tea Party movement of holding Americans hostage to their vision of small government.

"Republicans have taken us to the brink of economic chaos. The delay must end now so we can focus on the American people's top priority: creating jobs and growing the economy," House Democratic Leader Nancy Pelosi said in a statement.

Tea Party lawmakers say they are justified in taking a strong stand after being elected last year on a promise to slash spending.

Fears of an unprecedented default by the world's biggest economy and the more likely scenario of America losing its top-notch credit rating are gnawing at markets, hitting stocks, undermining the dollar and fueling a move to safe havens.

Further market turbulence appeared likely on Friday. After the announcement that the House would not vote on Thursday, the dollar fell to a four-month low of 77.50 against the Japanese yen. U.S. stock futures were off 0.6 percent, pointing to a weaker start on Wall Street.

Veterans of U.S. legislative battles voiced confidence that a deal will be reached as Congress works through the weekend and feels the heat from jittery financial markets and ordinary Americans frustrated by the Washington gridlock.

The main sticking point between Republican and Democratic leaders is that Boehner's two-step plan would only extend the government's borrowing for a few months. Obama wants the debt ceiling raised beyond the November 2012 elections.

Without a deal, Obama could be forced to consider taking emergency steps to ward off a default even though the White House has said Congress must come up with a solution.

Among his options are invoking an obscure constitutional amendment to raise unilaterally the debt ceiling or for the Treasury to prioritize payments, choosing between paying bond holders or Social Security pension recipients, for example.

"I think they should be exploring all their legal options," Democratic Representative Chris Van Hollen said on Thursday night.