We're basically standing on the edge of an abyss peaking over, with the bottom nowhere to be seen," said IG Markets strategist Ben Potter in a report.
He warned that without a deal by Monday, markets could "risk significant fear-based selling that could rapidly get out of control."
House of Representatives Speaker John Boehner's failure to round up enough support for his plan on Thursday exposed a rift in the Republican Party that is hampering efforts to reach a compromise to raise the US debt ceiling before next Tuesday.
President Barack Obama says that unless Democrats and Republicans strike a deal, the government will start being unable to pay all its bills on August 2, a once unthinkable prospect that is increasingly unnerving.
With only four full days left, the Treasury could unveil as early as Friday an emergency plan explaining how the government would function and pay its obligations if Congress does not agree to raise its borrowing limit from $14.3 trillion (£8.8 trillion).
Despite warnings of dire economic consequences, lawmakers appear as far apart as ever as conservative Republicans demand an end to what they say is out-of-control government spending and Democrats seek to protect spending on social programs.
In a sign of growing international alarm over the US impasse, China's state-run news agency sharply criticized US politicians, saying the world's largest economy has been "kidnapped" by "dangerously irresponsible" politics.
Some conservatives declared the bill “not good enough” and “too small,” while others had wondered aloud why they would vote for an imperfect bill in the House, only to see it killed in the Senate.
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The trouble for the leadership began Thursday afternoon, when his whip operation, led by Rep. Kevin McCarthy, realized they were falling short of the 216 GOP yes votes they needed from to pass Boehner’s package.
Adding to their headaches, Minority Leader Nancy Pelosi had announced earlier that although five Democrats had broken ranks to vote for the Republicans’ “Cut, Cap, and Balance” bill, none would support Boehner’s pared-down plan now.
“The Boehner bill will not pass because it has Democratic votes,” Pelosi said.
As time ticked toward the evening vote, an announcement rippled through the lobby of the House floor that the vote would be delayed for perhaps an hour, maybe more, an ominous sign for Capitol Hill veterans that Boehner was in trouble.
Still short of the commitments he needed, Boehner launched his own furious brand of shuttle diplomacy, rounding up a parade of no’s and maybe’s, and asking what they needed to get to “yes.”
Some conservatives declared the bill “not good enough” and “too small,” while others had wondered aloud why they would vote for an imperfect bill in the House, only to see it killed in the Senate.
Rep. Louie Gohmert went to Boehner’s ornate Capitol office as a no and came out a no, “bloodied and beaten,” as he described it. Like Gohmert, Rep. Jim Jordan, the chair of the House GOP’s internal think tank, went in against the bill and emerged unchanged.
On his way into the office of Whip McCarthy, no vote Rep. Steve Southerland of Florida told CBS News that the only way he would change his vote would be “if the Lord takes me home right now.”
The leaders had more luck with other freshmen. Rep. Bill Posey (Fla.) and two other undecided freshmen went in as “maybes.” One of them, Rep. Chuck Fleishmann emerged a “yes.”
As the hold-outs were worked over by Boehner, McCarthy and Majority Leader Eric Cantor, a handful of GOP freshmen sought solace in the House chapel. Rep. Jeff Duncan (S.C.) called fellow South Carolinian Mick Mulvaney to join him in the chapel to pray for Republican leaders. “I think they need it,” Duncan told Fox News.
As 6 p.m. turned to 7, some Republicans were still unsure how they would vote. Posey was spotted walking through the Capitol, again in search of Boehner, who remained in the throes of trying to convince Posey to come over to his side.
By 8 p.m. Boehner and Co. were still summoning their members and leaning on their sense of duty, loyalty and prudence--or just asking a really, really big favor. Tall stacks of Al’s Pizza boxes were delivered to the Whip office as the night wore on.
Rep. Trey Gowdy (R-S.C.) was uwavering in the hours before the vote, insisting that he had already compromised by voting for the Cut, Cap and Balance bill and needed a measure bigger and bolder than the plan Boehner had concocted. “I want something systemic that transcends election cycles,” he said. Even after an evening visit to Boehner’s chambers, Gowdy held firm.
Knowing that they lacked the votes to close their deal, McCarthy announced at 10:30 that the vote would be delayed at least until Friday. McCarthy did not say whether Boehner’s current bill would the one brought up for a vote, but staffers were told to prepare for changes to the bill.
Even if GOP members can agree on a package, Senate Majority Leader Harry Reid wasted no time promising to kill in the Democratic-controlled Senate whatever comes over from the House, and to do it as soon as possible.
“As soon as the House completes its vote, the Senate will move to take up that bill, and it will be defeated,” Reid said.
Despite the threats between the chambers, the proposals from Boehner and Reid are more similar than different, with both raising the debt limit, cutting trillions from the budget, and creating commissions to come up with future federal cuts down the road. But while Reid’s plan would punt another vote until after the 2012 elections, Boehner’s envisions another bill, with another debate, less than a year from now—before President Obama faces the voters.
Rep. Sander Levin, the top Democrat on the Ways and Means committee, called the bill an “abdication of responsibility.”
“This bill is going nowhere. It tries to bind the wounds of a divided Republican caucus,” Levin said. “We should do better. We have to do better.”
As Republicans hunted for votes and Democrats promised to block any progress the GOP makes, Rep. Elijah Cummings said that with so much dysfunction between the House and Senate, it is time for Obama to reengage in the talks or face a massive default.
“I think he has to get in there and sit down, even if he has to lock the doors, say, ‘Look guys there are no alternatives,’” the Maryland Democrat said. “And I don’t think they should come out until they’re done.”
Pelosi agreed that that once the votes are over, and both chambers prove they cannot pass each other’s bills, Obama needs to work with Reid, McConnell and Boehner to come up with a plan far better than what failed in the House on Thursday, which she warned would cripple entitlements to the point that seniors should “kiss Medicare goodbye.
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