JUDY WOODRUFF: The debt ceiling deadlock in Washington led to increasingly urgent appeals for action today. But, even as talks resumed, White House officials warned not to expect a hallelujah moment.
Fresh alarms sounded on Wall Street and around the world today about the consequences of a potential U.S. government default. Standard & Poor's joined Moody's in warning the country's credit rating could be downgraded if the government tries to pay just the interest on its debt.
And China said it hopes the U.S. adopts responsible policies. The Chinese hold more than $1 trillion in U.S. debt, more than any other foreign creditor.
At a Senate hearing, Federal Reserve Chairman Ben Bernanke, testifying on the economy for a second day, said lawmakers should heed the warnings.
BEN BERNANKE, Federal Reserve chairman: This is a tremendous asset of the United States, the quality and reputation of our treasury securities, and we benefit from it with low interest rates. So, I would urge Congress to take every step possible to avoid defaulting on the debt or creating any significant probability of defaulting on the debt.
JUDY WOODRUFF: Treasury Secretary Timothy Geithner was also at the Capitol, insisting the deadline to raise the national debt ceiling cannot be pushed past Aug. 2.
TIMOTHY GEITHNER, U.S. Treasury secretary: We have looked at all available options, and we have no way to give Congress more time to solve this problem, and we're running out of time.
JUDY WOODRUFF: But all the admonitions seemed to do little to move the process forward. Instead, reports emerged that yesterday's meeting at the White House ended with President Obama declaring, enough is enough, after a testy exchange with House Majority Leader Eric Cantor.
Today, the Senate's Democratic majority leader, Harry Reid, suggested Cantor should no longer be part of the talks.
New York Sen. Chuck Schumer chimed in:
SEN. CHARLES SCHUMER, D-N.Y.: Leader Cantor has yet to make a constructive contribution to these discussions. More than anything else, he is holding up an agreement at this point.
JUDY WOODRUFF: In turn, the leader of House Democrats, Minority Leader Nancy Pelosi, praised the president's demeanor.
REP. NANCY PELOSI, D-Calf. House minority leader: Job is no place compared to this president in terms of patience. He doesn't even begin.
JUDY WOODRUFF: Republicans, meanwhile, came to the defense of Cantor. House Speaker John Boehner offered him his verbal support and a literal pat on the back.
REP. JOHN BOEHNER, R-Ohio speaker of the House: Any suggestion that -- that the role that Eric has played in this meeting has been anything less than helpful is just wrong. Listen, we are in the foxhole. And I'm going to tell you what. This is not easy, because what we're trying to do here is to solve a problem that has eluded Washington for decades. I'm glad Eric's there. And those who have other opinions, they can keep them to their selves.
JUDY WOODRUFF: Back in the Senate, Republican Leader Mitch McConnell sought again to place blame for the stalemate squarely on the president.
SEN. MITCH MCCONNELL, R-Ky. minority leader: If he and the Democratic Senate would rather borrow and spend us into oblivion, they can certainly do that. But don't expect any more cover from Republicans on it than you got on health care -- none.
JUDY WOODRUFF: Even amid the public sniping, McConnell and Reid were said to be working on a failsafe plan that would raise the debt ceiling. The hybrid package would include McConnell's backup plan to let the president increase the debt ceiling on his own, extending through the 2012 election.
It would also add $1.5 trillion in cuts identified in bipartisan talks that were led by Vice President Biden. It was unclear if House Republicans would agree. And, at the White House, spokesman Jay Carney said the president still wants a bigger deal.
JAY CARNEY, White House press secretary: Whether it's Sen. McConnell's provision or some variation of it, they are not the preferred outcome here, and we continue to work as we did yesterday in the meeting and as the president will again today in his meeting with congressional leaders towards something more substantial and significant.
JUDY WOODRUFF: That meeting convened at the White House late this afternoon.
For a closer look at both the economics and the politics of this stand-off, we turn to two reporters who are following events closely, David Wessel, economics editor and a columnist for The Wall Street Journal, and Lori Montgomery of The Washington Post.
We thank you both.
Lori Montgomery, we heard that the talks just wrapped up about 15 minutes until 6:00. So what do you know about where things stand?
LORI MONTGOMERY, The Washington Post: Well, I think where things stand are pretty much where they stood earlier, with Mitch McConnell and Harry Reid trying to develop a fallback strategy, in the event that these talks do not lead to a compromise of some sort.
I think what was expected at the talks tonight -- I have not yet heard a report -- was that the two sides were going to -- were headed towards a final meeting in the morning and an agreement that it was time to perhaps start looking at other alternatives.
JUDY WOODRUFF: So, in other words, they haven't accomplished anything in these negotiations -- these discussions?
LORI MONTGOMERY: Well, I'm not sure that's true.
I mean, the Biden talks earlier in the month -- the spring -- reached -- developed a consensus around a certain package of cuts. And I think that that consensus is forming the basis for, you know, where this might go, as Leader Reid attempts to add spending cuts to the McConnell package.
So, you can't say nothing was accomplished. The two parties do seem to be trying to reach some agreement on how to cut spending.
JUDY WOODRUFF: But, when it comes to taxes, no movement?
LORI MONTGOMERY: Well, I think what we're headed towards is Democrats saying, look, in the Biden talks, we were willing to discuss some reductions to entitlement programs, but because Republicans aren't giving any ground on taxes, we're taking the health care cuts back off the table.
JUDY WOODRUFF: And, Lori, how do you see the fault lines among Republicans? Because we have heard Speaker Boehner saying one thing. We have heard at one point a different thing from Eric Cantor. And then you have the McConnell -- how do you lay that out?
LORI MONTGOMERY: Well, that continues today.
I mean, you had Boehner open the door pretty wide, I thought, to the McConnell strategy. He said he didn't know whether it could pass the House. But that's what is happening between Reid and McConnell right now to try to sort that out.
The basic problem is that Senate Republicans have a very small default caucus, not very many Senate Republicans for default. And in the House, you have got some people who think default might be OK. And that's what we need to figure out, how big that group is.
JUDY WOODRUFF: And again, on this -- this backup plan, the now hybrid plan, I guess, with Mitch McConnell, the Republican leader, working with Harry Reid, the Democratic leader, what is known about that? Does that appear to have traction, as you were just saying?
LORI MONTGOMERY: They're keeping it pretty close to the vest. My understanding is that the momentum is building behind pretty much what you described, the McConnell, "no fingerprints, Obama takes the fall" debt limit increase, a package of spending cuts, probably in the $1.5 trillion range, and then perhaps a new fiscal committee, 12 lawmakers, aimed at developing a broader debt reduction plan to actually finally solve this problem at some point in the future.
JUDY WOODRUFF: So, meanwhile -- David Wessel, I will bring you in -- the rating agencies have started to make noises. What is the significance of that?
DAVID WESSEL, The Wall Street Journal: Well, on one hand, I think it has very little significance. Maybe in some obscure country or company, people rely on the rating agencies to tell them what's going on. But it's not like the financial markets have any doubt about what is going on in the United States.
I do think, though, that it puts pressure on the members of Congress. We have a AAA rating. We're the safest credit in the world. And the rating agents are saying we're getting a little nervous. Moody's said, for instance, that they think the risk has gone from nothing to de minimis.
Well, so, as the talks drag on, people are saying this little risk is getting a little bigger and bigger, and that's making them nervous.
JUDY WOODRUFF: And the business community speaking up in the middle of all this, or not?
DAVID WESSEL: Right.
Well, the business community has come forward. A number of executives organized by the Washington business lobbies came up and told Congress and the president, do your job. I don't think they are any great profile in courage. They didn't volunteer to help reduce the deficit, take any tax breaks off the table and everything.
But I think they too, as we get closer to the moment of deadline, are trying to put a little pressure on the leadership to do the right thing.
JUDY WOODRUFF: And, Lori, back to you for just a moment on that. Is any of this having any bearing on what goes on in these congressional negotiations?
LORI MONTGOMERY: I think it is.
I mean, you can sense a growing sense of sort of not panic so much, but urgency, and, you know, a realization that we only have 19 days to get this done. And Republicans in both chambers really want to have a vote next week on the balanced budget amendment before we move to whatever plan B turns out to be.
So we have got another week of debating, you know, stuff that's not solving the problem. So that has led a lot of people, I think, to start behind the scenes trying to figure out exactly what it's going to take.
JUDY WOODRUFF: So, David, I saw you shaking your head a moment ago when Lori was describing this hybrid, so-called hybrid plan.
DAVID WESSEL: Well, the -- I think the disappointing thing is, if we come out of this crisis with another commission or a vote on a balanced budget which doesn't tell us anything about where we're going to raise taxes or cut spending, it really has become a missed opportunity.
This whole showdown was established by a bunch of people in Congress who saw that the debt ceiling is a must -- must-pass piece of legislation and they wanted to use it as a lever to get some significant deficit reduction. There were disagreements about how much spending and how much taxes. It looks like we're heading to something that will raise the debt ceiling, but it will kick the can down the road, which is exactly what people said they didn't want to do.
JUDY WOODRUFF: So is the concern out there about getting that debt ceiling raised, which is I guess the bottom line for the rating agencies, for the markets and others, or are they also looking, as you are saying, for some significant attack on the deficit, the debt?
DAVID WESSEL: I think they're looking for both things. The absolute essential is to get the debt ceiling raised, so the United States government can pay its bills in August. And the prospect of that not happening frightens everybody.
But in the Moody's report and what Fed Chairman Ben Bernanke said today, they also emphasize that we need to get on as a country with figuring out how to get our budget on a sustainable course.
JUDY WOODRUFF: And, Lori Montgomery, that part of their message, it sounds like, is -- is -- they are not paying heed to that?
LORI MONTGOMERY: It's not so much that they're not paying heed to that. I think that's why Democrats are now looking to attach spending cuts to the McConnell plan, which initially did nothing to guarantee spending cuts. So they're trying to address that problem.
But I think that this BRAC thing, the -- it's not a commission. It's a committee of lawmakers. And what we're hearing is that it would have a deadline to come up with presumably some targeted amount of savings to stabilize borrowing. And, you know, after trying to avoid a process that forces them to vote on a plan like this, you know, and the creation of the fiscal commission, on any number of occasions, it sounds like they're finally talking about a process that brings a plan to a vote in both chambers that can't be amended and forces them to make a decision.
JUDY WOODRUFF: And if that is what happens?
DAVID WESSEL: Well, I think that that is interesting, because both Paul Ryan, the House Budget Committee chairman, and Tim Geithner, the treasury secretary, two months ago predicted that we would end up in this place.
We will agree on a small amount of cuts, relatively small, the stuff we can agree on, and we will agree on a target for how much we are going to reduce the deficit over the next 10 years. And that first part will be a down payment, and we will try and set up some mechanism that will tie the Congress' hands and force it to finish the job, probably after 2012.
JUDY WOODRUFF: And, David, at this point, how much time before the markets and the folks you're talking about -- you talk to get really concerned?
DAVID WESSEL: It's almost impossible to tell. I think that the politicians in the United States have a luxury here that they don't fully appreciate, which is, if Europe were not a disaster area, the markets would be looking at the U.S. and the interest rates on U.S. treasuries would be rising.
But because -- it's almost as if they are counting on Europe to be even more dysfunctional than we are. And Europe decided to keep their part of the bargain. So despite all this stuff from Moody's, despite the letters from the Business Roundtable and the Financial Services Roundtable and all these business groups, the U.S. government today can still borrow 10-year money at less than three percent, which is pretty low.
And so, until the markets actually raise the interest rate, I think that some members of Congress aren't going to take the threat seriously.
JUDY WOODRUFF: Hmm.
Well, we're going to leave it there and watch it very closely, as you are.
David Wessel, Lori Montgomery, we thank you both.
DAVID WESSEL: You're welcome.
LORI MONTGOMERY: Thanks, Judy.