Obama dives into debt talks

Obama met the top Democrat in the Senate and his minority Republican counterpart, seeking to unpick a deadlock over his call on lawmakers to lift the $14.29 trillion debt ceiling by an August 2 deadline.

As political tensions rose, the White House warned of "calamitous" consequences to the global economy if the talks do not seal an agreement and Washington is forced into default and runs out of money to pay its bills.

"It\'s very important that we don\'t play chicken here, that we don\'t test the markets," White House spokesman Jay Carney said.

But Republicans, who quit talks with the White House last week accusing Obama of pushing tax hikes, again demanded big spending cuts in return for agreeing to lift the debt limit.

In the United States, Congress has to agree to lifting the cap on government borrowing, and has done so repeatedly in recent years at the urging of successive Democratic and Republican presidents.

But this time, congressional Republicans elected in a backlash against government, and on a platform of sweeping spending cuts in last November\'s mid-term polls, are demanding big concessions from the White House.

Carney told reporters the president emerged from his meeting with Senate Democratic Majority leader Harry Reid convinced a "significant deal remains possible."

He said the administration had shown it was ready for tough choices and challenged Obama\'s foes to stop shielding "millionaires and billionaires" and to take on "some of their sacred cows."

"Do we perpetuate a system that allows for subsidies in revenues for oil and gas, for example, or owners of corporate private jets, and then call for cuts in things like food safety or weather services?" Carney asked.

The White House says Republican budget plans would place the very survival of popular social entitlement programs like Medicare health plans for the elderly at risk.

Republicans claim Obama is motivated by preserving big government programs and wants tax increases which would harm the economy. They are demanding large cuts to the annual deficit, projected to hit $1.6 trillion this year.

Reid said after his talks with Obama that Republicans should join his Democrats and seek a deal, and not look to score points with the ultra-conservative wing of their party with the 2012 presidential election looming.

"I hope my Republican colleagues will put the economy ahead of politics. I hope they\'ll join us to create jobs and set aside their desire to please the Tea Party and defeat President Obama," Reid said.

Senate Minority leader Mitch McConnell met Obama in the early evening, but both sides declined to provide details of the closed door talks.

A senior aide to McConnell said the two sides would continue talking after the veteran Senate powerbroker had earlier staked out a tough line.

"I\'ll sit down with President Obama to discuss his request to raise the nation\'s debt ceiling," McConnell said in a Senate speech.

"When I do, I intend to make a request of my own: I intend to ask the president what he\'s prepared to do, outside of raising taxes, about the massive deficits and debt that have accumulated on his watch."

The Washington Post meanwhile reported that some Republicans may be open to a compromise that includes cuts in defense spending rather than changes to tax policy.

The US government hit its legal borrowing limit on May 16 and a succession of meetings chaired by Vice President Joe Biden were designed to secure congressional approval to raise the ceiling.

The Treasury, which has performed a number of intricate financial measures since then, says it will run out of maneuvering room on August 2.

Financial rating agencies have warned of a possible downgrade of the top US debt rating without an increase in the debt ceiling.

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