JUDY WOODRUFF: Congress and the president got a grave new warning today on what happens if they can't agree on how to cut the deficit and raise the debt ceiling. But Republicans and Democrats faced mounting internal pressures not to give ground in the battle over spending cuts vs. tax increases.
The Aug. 2 deadline to raise the government's borrowing limit loomed ever larger at the Capitol today. At a House hearing, Federal Reserve Chairman Ben Bernanke painted a stark picture of what national default would mean, starting with sweeping spending cuts.
BEN BERNANKE, Federal Reserve chairman: Immediately, there would have to be something on the order of a 40 percent cut in outgo. The assumption is that as long as possible the Treasury would want to try to make payments on the principal and interest of the government debt, because failure to do that would certainly throw the financial system into enormous disarray and have major impacts on the global economy.
You know, if -- I think the worst outcome if we don't raise the debt limit is that, at some point, you know, we -- that we default on the debt. And that would create, as I said before, a huge financial calamity, which in turn would affect everybody and would set job creation back very significantly.
JUDY WOODRUFF: The chairman's warning underscored the stakes, as the president and congressional leaders convened again this afternoon at the White House, seeking to break their deadlock.
Much of the talk leading up to that session centered on a backup plan put forward yesterday by Senate Republican Leader Mitch McConnell. His proposal would give the president authority to raise the debt ceiling on his own by as much as $2.5 trillion in three installments. It would also require the president to outline specific spending cuts, but wouldn't guarantee they would ever be made.
On the Senate floor this morning, McConnell said the measure was designed to do one thing:
SEN. MITCH MCCONNELL, R-Ky. minority leader: Make the president show in black and white the specific cuts he claims to support. If he refuses, he will have to raise the debt ceiling on his own. But he's not going to get Republicans to go along with that. That way, the president can't pretend to support cuts when he doesn't. He's forced to simply put up.
JUDY WOODRUFF: But not all Republicans were on board. South Carolina Sen. Jim DeMint spoke to CBS.
MAN: What are your thoughts on Senator McConnell's deal?
SEN. JIM DEMINT, R-S.C.: Well, Republicans weren't elected last November to make it easier to spend and borrow and add to our debt. That's not our plan. I have been working with House members and senators. We're going to introduce a plan that would give the president an increase in the debt limit, but it's contingent on cutting spending and capping spending over several years.
JUDY WOODRUFF: On the Democratic side, Senate Majority Leader Harry Reid said he remained open to McConnell's idea.
SEN. HARRY REID, D- Nev. majority leader: I am heartened by what I read. It's a serious proposal. And I commend the Republican leader for coming forward.
I believe that the Republican leader's proposal, combined with ideas he and I have been discussing to force a vote on deficit reduction proposals, could go a long way toward resolving the impasse we now find ourselves.
JUDY WOODRUFF: Other Democrats disagreed. New York Sen. Chuck Schumer called the proposal a political document aimed at protecting the GOP.
SEN. CHARLES SCHUMER, D-N.Y.: Hundreds of members of the Republican Party throughout the country, scores in this Congress, both this house and the other, have said we are not going to raise the debt ceiling.
Sen. McConnell, realizing the consequences of doing that would fall on the party that doesn't believe it's important to do, had to act.
JUDY WOODRUFF: At the day's White House briefing, Press Secretary Jay Carney said the president appreciates McConnell's effort, but:
JAY CARNEY, White House press secretary: This is not a preferred option. The president is firmly committed to significant cuts in spending and to dealing with our deficit and debt problems in a balanced way.
MAN: Right now, some in Washington want to make a deal.
JUDY WOODRUFF: There was also pressure against compromise from outside groups. The American Association of Retired Persons released an ad urging negotiators to back off any consideration of cuts to Medicare and Social Security benefits.
Late today, Moody's Investors Service gave notice that it's putting the U.S. government's credit rating on review for a possible downgrade. The bond rating agency said there is a -- quote -- "rising possibility" the debt limit will not be increased in time to avoid default.