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President plays mediator in debt talks to prevent government bills going unpaid, interest rates soaring and US stocks plummeting For the third day in a row, congressional leaders were locked in discussions at the White House over the looming budget crisis, with no resolution in sight amid increasingly entrenched political positions. Washington is well versed in the political theatre of budget crises, but the current head-bashing between Democratic and Republican leaders has entered a class of its own. Not only are the two main parties further apart in their thinking compared with the previous great meltdown that shut the federal government, in 1995, but the stakes are higher now than in living memory. Unless agreement can be reached on raising the debt ceiling from its current $14.3tn towards the end of this month – in time for legislators to prepare the paperwork before the 2 August deadline – then within days, even hours, the US government would be unable to pay its debts, interest rates would almost certainly soar, and US stocks would likely plummet as trust in the American system was undermined. Barack Obama is now engaged in near-permanent talks with congressional leaders, with all other concerns shunted aside. On Tuesday he called Democratic and Republican leaders to the White House to continue where they had broken off the day before, but both sides remain stubbornly resistant to compromise – a sign of the increasingly partisan nature of US politics. At a time when bridge-building between the parties is crucial, the Republican leadership chose to take the opposite path. Mitch McConnell, the party’s leader in the Senate, accused Obama of “deliberate deception” in the talks. John Boehner, the top Republican in the House of Representatives, told reporters that “the debt limit is [Obama's] problem”. At the weekend Boehner jettisoned the search for a big compromise deal, rejecting Obama’s proposal for a package that would reduce the federal deficit by $4tn over 10 years. The rejection left the Republican party – the supposed party of small government – in the surreal position of proposing a smaller reduction in the deficit, which they now want to see cut by just $2tn. At the heart of the Republican resistance is their refusal to contemplate tax increases, even those including removing tax loopholes on oil profits or private jets. The Democrats are also in a bind: many of their congressional members are unwilling to make concessions demanded by the right that would cut social programmes such as Medicare and Medicaid. “The Democratic party on average is further left, and the Republican party on average further right, than before,” said Ron Haskins, a former adviser to George Bush and a senior fellow at the Brookings Institution. “So they are trying to cut a deal between folks who are more driven by their ideologies and principles.” Obama, who has been accused in the past by commentators of both left and right of failing to show leadership on the issue, is now energetically trying to carve out a middle ground despite the apparent lack of flexibility from his fellow politicians. As part of the $4tn package, he is asking Republicans to concede $1tn in increased taxes; from Democrats he is asking for cuts in social benefits such as Medicare, the programme of entitlements for older people. One proposal is to raise the age of the programme from 65 to 67, which has distressed the left of the Democratic party. Another is to lower the annual cost-of-living increases, which would see a gradual whittling away of retirement benefits. “I’m prepared to take on significant heat from my party to get something done, and I expect the other side should be willing to do the same thing if they mean what they say,” Obama said on Monday. There are two major influences on the budget process making a resolution more difficult. The first is the Tea Party movement, the nationwide branch of fiscally conservative activists exhorting Republicans to stand firm against higher taxes. The other is the 2012 elections, which are already focusing politicians’ minds, as is the fear that if they are seen to be weak and compromising they could be punished at the ballot box. Barack Obama US politics US economy United States Economics Ed Pilkington guardian.co.uk