Dismal jobs picture complicates debt talks

Dismal U.S. unemployment figures on Friday complicated an effort to avert a looming default as Washington's top Republican said negotiators were not close to a deal that would ensure continued borrowing.

Tamping down expectations Democrats and Republicans could reach agreement over the weekend, House of Representatives Speaker John Boehner said the two sides still must overcome serious disagreements on taxes and spending cuts.

"It's not like there's some imminent deal about to happen," Boehner told a news conference. "This is a Rubik's Cube that we haven't quite worked out yet."

Boehner and President Barack Obama are trying to craft a sweeping budget deal that would ensure the national debt remains at a sustainable level by cutting $4 trillion from budget deficits over 10 years.

That would give lawmakers political cover to raise the $14.3 trillion debt ceiling before August 2, when the country is due to run out of borrowing capacity.

Failure to act by then could push the country back into recession and send shock waves through the global economy.

The Republican-led House canceled a planned July 18 break, which would make it easier for Congress to pass a deal by early August.

Markets are showing few signs of concern that the United States will default on its debt.

In fact, investors beat a path to the U.S. Treasury's sale of $28 billion in four-week bills on Wednesday, elbowing each other for the chance to buy debt paying zero interest and maturing on August 4 -- two days after the country faces possible default.

Democrats and Republicans remain at odds over what elements should be part of the deal. Democrats are pushing for roughly $1 trillion in new tax revenue, while Republicans want to restructure popular benefit programs.

Obama, Boehner and other congressional leaders are due to tackle their differences at a meeting on Sunday, and staffers will work through the weekend to lay out options.

Their task probably will not be helped by Friday's disappointing jobs report, which doused hope that the economy could regain momentum in the second half of the year.

The unemployment rate rose to 9.2 percent as employers hired the fewest number of workers in nine months.

Obama is eager to bring the jobless rate down ahead of the November 2012 election, which will largely hinge on how Americans feel about the economy.

The two parties are pushing sharply different agendas to bring down the jobless rate.

Boehner and other Republicans have passed bills in the House that would scale back regulations and encourage more domestic oil and gas production. They say any tax increases would further dampen the economy.

"It just does not make sense for Americans to suffer under higher taxes in an economy like this," said Representative Eric Cantor, the No. 2 House Republican.

Democrats fear the sharp spending cuts advocated by Republicans as part of any deficit reduction deal would further weaken the economy.

Senate Democratic leaders have proposed ramping up highway construction, subsidizing green energy industries, and extending a payroll tax cut due to expire at the end of this year. Those measures would worsen budget deficits and make it harder for negotiators to reach their $4 trillion goal.

White House economic adviser Austan Goolsbee said the jobs report showed the need for the budget deal to include new tax revenue and job-creation measures as well as spending cuts.

[Source: By Andy Sullivan, Reuters, Washington, 08Jul11]

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