Obama, Republicans dig in over tough US debt talks

Obama gave only a lukewarm welcome on Tuesday to Republican Senate Minority Leader Mitch McConnell\'s idea, which would also save Republicans from having to forge a politically painful debt reduction deal with the White House.

White House spokesman Jay Carney said the president still sought "agreement on significant, balanced deficit reduction" -- code for a blend of the spending cuts Republicans favor and tax hikes they fiercely oppose.

The talks ran about two hours without any breakthroughs, and the White House later announced the two sides would meet again Wednesday at 4:00pm (2000 GMT).

McConnell laid out a complex legislative mechanism shortly before heading to the White House, calling it a "last-choice option" if teetering negotiations on raising the country\'s $14.29 trillion debt ceiling collapse.

Economists and business groups warn that defaulting would hurt Washington\'s ability to borrow, sour already tense ties with creditors like China, send interest rates soaring and steer the fragile global economy into a tailspin.

"If we are unable to come together, we think it\'s extremely important that the country reassure the markets that default is not an option," said McConnell, who described himself as "increasingly pessimistic" about a deal.

Republican House Speaker John Boehner later told Fox News Channel it was "a last-ditch back-up plan" but stressed that without a default-avoiding accord "a couple of weeks from now we may be looking for all kinds of ideas."

Obama piled the pressure on Republicans to agree to his proposal to make cuts to social safety net programs dear to Democrats while raising taxes on the richest earners in a step his opponents charge will stifle job growth.

The president warned that without a deal by the August 2 deadline elderly retirees, military veterans and others might not get government benefit checks "because there may simply not be the money in the coffers to do it."

"I cannot guarantee that those checks go out on August 3 if we haven\'t resolved this," Obama told CBS television.

Earlier, McConnell and Boehner blamed Obama for the impasse in the negotiations amid apparently dimming prospects for an agreement to cut trillions of dollars in spending to offset new borrowing.

"This debt limit increase is his problem," Boehner declared, saying: "I think it\'s time for him to lead by putting his plan on the table, something that the Congress can pass."

"This is not a Republican or a Democratic problem. This is a national problem," Obama countered on CBS.

McConnell, who has said that Republicans\' top priority must be defeating Obama in the November 2012 elections, charged that "as long as this president is in the Oval Office, a real solution is unattainable."

Later, McConnell unveiled a plan to allow Obama to request $2.5 trillion in new borrowing authority in three tranches: $700 billion now, $900 billion in June 2012 -- when the president\'s reelection battle will be in full swing -- and another $900 billion sometime afterwards.

Congress could reject the request in a "resolution of disapproval," which Obama could veto, and failure to rally two-thirds of lawmakers to override that step would automatically allow the debt increase, he explained.

Obama would be required to propose spending cuts to offset the new borrowing and would not be allowed to seek tax increases, McConnell said.

The plan would give Republicans several chances to vote against any debt increase -- as demanded by core supporters in the "Tea Party" movement -- while leaving Democrats to shoulder all the political pain.

But because it does not guarantee spending cuts, it was unclear how House of Representative Republicans would react, while Democrats in both chambers seemed likely to balk at the hurdles set for tax increases on the rich.

The president, whose reelection bid will turn on how he has handled the US economy, has called for an agreement by July 22 to give lawmakers time to approve it by the August 2 deadline.

He has vowed to hold daily negotiations to break the impasse aiming to raise the congressionally set limit on US borrowing in the face of a budget deficit expected to hit $1.6 trillion this year.

The US hit the ceiling on May 16 but has since used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating without impact on government obligations.

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