Obama, Republicans, seek to break debt impasse

Obama was to sit down with leaders of both parties in the Republican-held House of Representatives and the Democratic-led Senate to find a way to slash spending as part of a compromise to raise the US debt ceiling.

"Real differences remain," the president said at the White House Friday, blaming "uncertainty" over the final outcome of the negotiations for keeping the economic climate cautious.

"It's not like there's some imminent deal about to happen. There are serious disagreements about how to deal with this very serious problem," Republican House Speaker John Boehner agreed at his weekly press conference.

But "the situation that we face is pretty urgent. Matter of fact, I think I would describe it as dire," Boehner said, warning against brinksmanship with the fast-approaching August 2 deadline, which must be met to avert a catastrophic US default.

Hopes appeared to dim further late Saturday as Boehner warned he was abandoning efforts to reach a larger, comprehensive debt reduction deal with the White House.

Boehner said in a statement that his party would scale back the discussions and "focus on producing a smaller measure" of cuts that would offset any limit in the US debt increase, to avert a default.

During his weekly Saturday radio address, Obama again acknowledged "real differences of approach," but he injected a note of optimism as well.

"The good news is, we agree on some of the big things," Obama pointed out.

"We agree that after a decade of racking up deficits and debt, we finally need to get our fiscal house in order. We agree that to do that, both sides are going to have to step outside their comfort zones and make some political sacrifices," he said.

"And we agree that we simply cannot afford to default on our national obligations for the first time in our history; that we need to uphold the full faith and credit of the United States of America."

The Sunday talks are part of a final major push to reach a deal to raise the congressionally determined limit on US borrowing, now set at $14.29 trillion, in the face of a budget deficit expected to hit $1.6 trillion this year.

The US hit the ceiling on May 16, but has since used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating without impact on government obligations.

But by August 2, the government will have to begin withholding payments -- to bond holders, civil servants, retirees or government contractors -- and the White House has urged a deal by July 22 to have time for Congress to pass it.

A US debt default would, experts say, unleash shockwaves on the global economy, but both sides face high political obstacles to a deal aides say could include cuts of up to $4.5 trillion over 10 years.

Boehner faces pressure from Republicans close to the archconservative "Tea Party" movement to reject any compromise that raises taxes, something he has already publicly ruled out.

"At the end of the day, we've got to have a bill that we can pass through the House and the Senate. This is a Rubik's Cube that we haven't quite worked out yet," said the speaker.

Obama faces pressure from Democrats outraged by talk that he might agree to cuts in the fraying US social safety net, notably to the Medicare health program for the elderly and disabled and to Social Security retirement benefits.

"The dirty, rotten devil is in the dirty, rotten details," Democratic House Minority Leader Nancy Pelosi said after an early Friday meeting with Obama and Vice President Joe Biden.

The discussions are sure to shape Obama's 2012 reelection bid, which will likely turn on voters' assessment of his handling of the US economy as it claws its way out of the worst recession since the Great Depression of the 1930s.

The summit comes after the US Labor Department said that the ailing US economy, still digging out from the 2008 global meltdown, had generated a paltry 18,000 jobs in June and the unemployment rate had ticked up to 9.2 per cent.

Odds of reaching a deal are "probably significantly less than 100 per cent. But it's there and it's possible. And we would be letting the American people down if we didn't try," Obama spokesman Jay Carney said Friday.

But Boehner warned that, despite continuous staff-level discussions, "in all honesty, I don't think things have narrowed. I don't think this problem has narrowed at all in the last several days."