Can President Obama Help To Forge a Deal?

August 2nd deadline - Calendar - Illustration

The ongoing talks between the Democrats and Republicans were escalated to the highest levels earlier today, as President Obama announced that he would be taking control of debt ceiling and deficit reduction negotiations between the two parties.

Discussions led by Vice President Biden fell apart earlier this week due to a disagreement over tax increases. In short, Democrats believe that a deficit reduction plan needs to include "tax increases or the elimination of tax breaks for big companies and wealthy individuals", while the Republicans are holding fast to their contention that taxes shouldn't be increased at all. Instead, the Republicans say, major reductions in the deficit can be achieved strictly through large spending cuts.

The Republicans have repeatedly stated that they will not agree to an increase in the nation's debt limit without an agreement that significantly cuts the size of projected long-term deficits. Treasury Secretary Timothy Geithner has stated that the nation's $14.3 trillion debt limit must be raised by August 2nd in order to avoid catastrophic consequences (such as the first default in the history of the United States), which is why President Obama has decided to become directly involved in the deficit reduction/debt limit talks, as the clock is currently ticking.

According to published reports, President Obama plans to meet with Senate Majority Leader Harry Reid and Senate Republican leader Mitch McConnell on Monday.

Can President Obama help to forge a deal between the two sides?

This is a very high-stakes poker game that is currently being played between the two sides right now. The debt/deficit situation is something that threatens to bury the nation unless significant changes are made, and fast. The CBO (Congressional Budget Office) recently speculated that the United States could have a debt load that is 190% of the GDP by 2035 (see "alternative fiscal scenario").

In addition, the perceived "winner" of the debt ceiling/deficit reduction discussions will receive a big boost ahead of the 2012 Presidential election.

With so much on the line, you can safely assume that both sides will be sticking to their guns right up until the August 2nd "deadline".

Will the two sides reach a compromise? Will we move past August 2nd without a deal in place? If so, what happens then?

This story is going to keep building in intensity over the next month and a half. It's going to be very interesting to see how things end up playing out.

Source: Finance.yahoo.com - Obama steps into high-stakes debt-limit talks

Filed under: The Economic Meltdown

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