US News

Obama warns of default, Senate nears deal

WASHINGTON — President Obama issued a stunning warning Monday that the US has “a good chance of defaulting” on its debts, even as Senate leaders closed in on a deal to avert the looming financial catastrophe.

“We stand a good chance of defaulting and defaulting could have a potentially devastating affect on our economy,” said Obama as he assembled bologna-and-cheese sandwiches during a visit to Martha’s Table, a local food pantry.

It was the first time Obama personally sounded the alarm that the US might stop paying its bills — likely setting off a global economic crisis — if the $16.7 trillion debt limit isn’t increased by Thursday.

Presidents typically offer more reassuring rhetoric to the nation and the world during times of crisis, especially when financial markets are hanging on every word out of Washington. Just last week, Treasury Secretary Jack Lew and Federal Reserve Chairman Ben Bernanke told a gathering of foreign leaders that the US would almost certainly fix the debt limit in time to avoid default.

Investors ignored the president’s stark warning and focused instead on upbeat remarks from Senate leaders that a deal was at hand, sending the Dow Jones Industrial Average up 64.15 points after starting the day with a 101-point drop.

Sources said that the deal taking shape would require the Health and Human Services agency to verify that people who get ObamaCare subsidies meet income requirements, a Republican demand.

Senate Majority Leader Sen. Harry Reid, D-Nev., is surrounded by reporters after leaving the office of Senate Minority Leader Sen. Mitch McConnell.AP

Democrats held the line on a 2.3-percent tax on medical devices needed to help fund ObamaCare, which Republicans had sought to repeal, though the deal would also include a 1-year delay of a $63-a-person tax associated with ObamaCare known as the reinsurance tax that employers pay.

Senate Majority Leader Harry Reid (D-Nev.) and Senate Minority Leader Mitch McConnell (R-Ky.) closed in on an agreement during a flurry of backroom meetings at the Capitol.

They came up with a proposal that would reopen the government until Jan. 15, provide for new budget negotiations through mid-December and extend the debt limit into February, said a source close to the talks.

“I’m very optimistic we will reach an agreement,” Reid said.

“We’ve made tremendous progress. We are not there yet but tremendous progress. And everyone just needs to be patient. Perhaps tomorrow will be a bright day.”

McConnell said he was confident “we’re going to get a result that will be acceptable to both sides.”

If they succeed, the agreement would face an uncertain fate in the Republican-run House.

Obama had scheduled an afternoon meeting at the White House with congressional leaders to press for an agreement. But the White House postponed the session indefinitely as the two veteran Senate leaders appeared to be getting the job done on their own.

The White House insisted the decision to delay the meeting was a good thing, saying in a statement that Obama wanted “to allow leaders in the Senate time to continue making important progress toward a solution that raises the debt limit and reopens the government.”