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US deadlocked, default fear grows

business Updated: Jul 12, 2011 01:36 IST
Andy Sullivan
Andy Sullivan
Highlight Story

After months of effort, US President Barack Obama and congressional Republicans are right back where they started as they try to avert a looming debt default: arguing over taxes.

With a "grand bargain" to tame the national debt seemingly off the table, Obama, house of representatives speaker John Boehner and other top leaders will try for a more modest deal when they resume their discussions at the White House on Monday.

But negotiators will have to confront a divide over taxes that has prevented them from reaching a deal so far. Democrats say new tax revenues need to be part of the equation, while Republicans say they won't back any increase in taxes. A highly anticipated Sunday meeting broke little new ground.

The treasury department has warned that it will run out of money to cover the country's bills if Congress does not raise the $14.3 trillion debt limit by August. 2. Failure to do so could push the country back into recession, send shock waves through global markets and threaten the dollar's reserve status.

The real deadline is even closer. Participants say a deal should be in place by July 22 to ensure Congress has enough time to act, and Obama has told lawmakers to be prepared to meet every day this week.

The grand bargain party