President indicates support for Senate's 'Gang of Six' scheme
The Republican-controlled House of Representatives passed legislation to cut federal spending by $6trillion last night through strict measures of 'cut, cap and balance'.
But President Barack Obama has already announced he will veto the stringent reduction plan, favoured by hard-line conservatives the Tea Party, which calls for caps on future federal spending and makes it much harder to raise taxes.
The 234-190 vote late last night highlighted the stark contrast between the Republican's attitude and the Senate's approach to solving the looming debt crisis.
Cut, cap, balance: U.S. House Majority Leader Eric Cantor leads fellow House Republicans as they discuss their deficit-cutting plan which Obama has already announced he will veto
The House bill faces almost certain defeat as Obama favours the bipartisan 'Gang of Six' proposal, who claim they have found a plan which would carve more than $4trillion from the deficit over the coming decade.
The Gang of Six plan cuts spending and raises taxes, which could lead to the debt ceiling being raised.
The President admitted that discussions are nearing the '11th hour' as the August 2 deadline for a deal rapidly approaches.
But in a sign that progress is finally being made after weeks of political stalemate in Washington, he threw his support behind new plans to avert a potentially devastating debt default.
World in his hands: President Obama has until August 2 to raise the debt ceiling in the United States
Shares on Wall Street rallied on the news, with the Dow Jones Industrial Average up around 200 points after days of volatility and heavy selling.
Gold also fell from its new record high, dropping back to $1,585 an ounce having earlier hit $1,610.
The precious metal is a traditional 'safe-haven' for nervous investors in turbulent times. Other assets seen as high risk in recent days, such as the euro, recovered some of their losses.
'There's been some progress on the debt talks, so that's positive for risk,' said Brian Dolan, chief currency strategist at Forex. com.
The US has hit its legal borrowing limit of $14.3trillion and will default on its debts if it does not raise the ceiling by August 2.
Democrats and Republicans have been at loggerheads over how to deal tackle the issue, with Obama warning that it could 'bring down my presidency'.
The White House has proposed spending cuts as well as tax hikes for the rich – something Republicans vehemently oppose. Ratings agency Standard & Poor's last week warned that the US will lose its prized 'AAA ' credit score if it does not strike a deal.
A lower credit score would drive up borrowing costs in America, hinder economic growth, and cause havoc in financial markets.
But Obama last night raised hopes that a solution will be found. He backed a proposal by the bipartisan 'Gang of Six' who claim they are nearing an agreement on a plan to cut the deficit by more than $4trillion over the coming decade – paving the way for the debt ceiling to be raised.
Obama urged Senate Majority leader Harry Reid, a fellow Democrat, and Senate Republican leader Mitch McConnell, to start 'talking turkey' about the deal.
The debt crisis battering the eurozone has threatened to go global because of the stalemate in the US . The
IMF last night warned that the eurozone crisis could have 'major global consequences' if it is not tackled.
European leaders were to rescue Greece and stop contagion spreading to some of the region's largest economies including Italy and Spain.
