The United States is facing a crucial weekend in its debt saga, as congressional leaders work out whether they will raise the country's debt ceiling and President Barack Obama pushes for a sweeping budget deal crammed with cuts and tax increases.
Obama has asked congressional leaders to give their answer by this weekend.
"We have a responsibility — and an opportunity — to reduce our deficit as much as possible and solve this problem in a real and comprehensive way," the American president said in his weekly radio and internet address on Saturday.
"I'm willing to do what it takes to solve this problem, even if it's not politically popular. And I expect leaders in Congress to show that same willingness to compromise. The truth is, you can't solve our deficit without cutting spending."
He went on to talk about spending less on defence and Medicare, as well as "taking on the tax code, and cutting out certain tax breaks and deductions for the wealthiest Americans."
Obama has already held five days of meetings with congressional leaders, proposing deficit cuts of either $4 trillion, $2 trillion or $1.5 trillion US over a decade, but none of those options had enough support.
"We have to ask everyone to play their part, because we are all part of the same country," Obama said Saturday, urging everyone of all political stripes to unite. "We are all in this together."
Republicans want balanced-budget amendment
Republicans are against any tax boost and are scheduled to vote on their own plan on Tuesday, which would cut and cap federal spending and includes a constitutional amendment requiring a balanced budget.
What is the debt ceiling?
It's a legal limit on how much debt the government can accumulate. The government takes on debt two ways: It borrows money from investors by issuing Treasury bonds, and it borrows from itself, mostly from the Social Security trust fund, which comes from payroll taxes. Congress created the debt limit in 1917. It's unique to the United States. Most countries let their debts rise automatically when government spending outpaces tax revenue. Congress has increased the debt limit 10 times since 2001.
Senator Orrin Hatch, a Utah Republican, blamed Democrats for failing to adopt deeper budget cuts. "The solution to a spending crisis is not tax increases."
Hatch promoted the balanced-budget amendment, saying it "would put us on a path to fiscal health and would prevent this White House or any future White House from forcing more debt on the American people."
The U.S. government ran budget surpluses under Democratic president Bill Clinton from 1998 to 2001, but plunged into the red again under his successor, George W. Bush, who oversaw a doubling of the national debt.
Since the Republican plan is unlikely to pass in the Democrat-controlled Senate, Republican and Democratic leaders are working on a bipartisan plan that would allow Obama to raise the debt limit without a prior vote by legislators.
There must be a deal by Aug. 2nd to raise the country's debt ceiling or the U.S. risks defaulting on its loans.
Federal Reserve chairman Ben Bernanke has issued dire warnings about a debt default, as red flags from credit rating agencies and pressure from the business and financial sectors continue to mount.
Credit rating agency Standard & Poor's said on Thursday that there is a 50 per cent chance it will downgrade the U.S. government's credit rating within three months because of the congressional impasse over approving an increase in the debt ceiling. The rating agency said it is placing the United States on a credit watch.