US lawmakers close to deal to avoid default

First $1 trillion of spending cuts have been agreed on; Cuts will come in two phases; politicians deal with looming market shock.

capitol 311 (photo credit: Courtesy)
capitol 311
(photo credit: Courtesy)
WASHINGTON - US lawmakers were close to a last-gasp $3 trillion deal on Sunday to raise the US borrowing limit and assure financial markets that the United States will avoid a potentially catastrophic default.
"We're very close," said Senate Minority Leader Mitch McConnell, the top Senate Republican who is playing a key role in the debt ceiling negotiations.
White House senior adviser David Plouffe said there was general agreement on a deal that would cut the US deficit in two stages. It was first time the White House had acknowledged that both sides were close to a deal.
The first $1 trillion in cuts have been largely agreed on by lawmakers. Under the emerging deal described by congressional aides, a further $1.8 trillion would be recommended by a special committee appointed by Congress and automatic measures would implement the planned cuts if Congress failed to vote on them.
"It is clear that in the first stage we're going to get ... an extension of the debt ceiling, a first set of spending cuts over $1 trillion, and then you're going to get this committee that will be charged with reporting out hopefully a balanced deficit reduction," Plouffe told NBC's "Meet the Press."
An agreement would end weeks of political gridlock that brought the world's largest economy teetering on the brink of an unprecedented default and close to losing its triple-A credit rating.
Senator Charles Schumer, a Democrat, told CNN: "Default is far less of a possibility now than it was even a day ago because the leaders are talking, and talking in a constructive way."
Politicians were scrambling for a deal to avoid the possibility of market shock on Monday, before Tuesday's deadline when the United States loses its borrowing authority.
US default would plunge economies worldwide into turmoil
"We have to get this solved. Today is obviously a critical day. We have to give confidence that there is a pathway" to reduce the deficit, Plouffe said.
A US default would plunge financial markets and economies around the globe into turmoil. US stock markets last week posted their worst losses in a year, the dollar slumped and nervous investors put cash into insured bank accounts.
Japan, the second largest holder of US debt, was increasingly alarmed that the United States would miss the deadline, sources familiar with Japan's fiscal affairs said.
McConnell, speaking on CNN's "State of the Union," said he hoped to be able to recommend an agreement "very soon" to Republican senators. Asked if a deal would emerge on Sunday, he said, "Soon."
The emerging deal seemed to answer key demands of both sides. It would have no tax increases as Republican wanted, and it would extend the debt ceiling through the 2012 election year as President Barack Obama insisted.
But by relying solely on spending cuts, Obama and his Democrats were likely to face questions about whether they ceded too much ground to Republicans and how they would protect popular but expensive social programs from the knife.
Democratic Senate Majority Leader Harry Reid pushed back a key procedural vote on a debt limit plan by 12 hours to 1 p.m. local time on Sunday, buying time for both sides to hammer out details before Asia markets open in a few hours' time.
The tentative agreement proposes setting up a committee, to be made up of members from both parties, that would be charged with negotiating the tough elements of reforming popular but expensive entitlement programs as well as the US tax code.
McConnell said the committee would make its recommendations by late November.
Any deal would have to get through the Republican-controlled House of Representatives, where Tea Party conservatives have been seeking deep cuts and are pushing to get an amendment to the US Constitution requiring a balanced federal budget.
"Discussions are moving in the right direction, but serious issues remain. And no agreement will be final until members have a chance to weigh in," said a House Republican leadership aide.