Debt showdown: Obama's dire warning

Barack Obama. Photo / AP

US President Barack Obama has stepped up the pressure on Republicans over the US debt crisis, scheduling a rare prime time speech to warn of "incalculable damage" if a compromise is not reached.

The address came with Democrats - who control the Senate - and Republicans - who lead the House of Representatives - at odds over rival plans for raising the $14.3 trillion US debt limit, allowing cash-strapped Washington to stay open.

Mr Obama used his seventh formal address to the nation to say it would be "reckless and irresponsible" for lawmakers to allow a stalemate to cause a default.

He criticised a "significant" number of Republicans who he said were refusing to back a plan that did not protect the tax cuts and deductions of "millionaires and billionaires".

"We can't allow the American people to become collateral damage to Washington's political warfare."

Finance and business leaders have warned that a failure to raise the US debt ceiling by then would send shockwaves through the fragile world economy.

Obama went further, predicting a default would trigger economic "Armageddon."

All sides in the dispute agree cash-strapped Washington must reduce its deficit but disagree on the size and blend of spending cuts and revenue increases, as well as on how and whether to slice into the social safety net.

Mr Obama blamed the debt crisis on massive tax cuts and wars in Iraq and Afghanistan instituted during the tenure of former President George Bush.

He said the debate boiled down to two choices - between a "cuts only" approach advocated by many Republicans and a compromise deal including spending reductions and tax hikes on wealthy Americans.

The majority of Americans who make under $250,000 would see no tax increase under a crisis plan backed by Democrat Senate leader Harry Reid, he said.

"A significant number of Republicans in congress are insisting... on a cuts only approach. An approach that doesn't ask the wealthiest Americans... to contribute anything at all."

"How can we ask a student to pay more for college before we ask hedge fund managers to stop paying less tax than their secretaries?"

Republican House Speaker John Boehner immediately rejected those accusations and pinned the blame for the crisis on Mr Obama.

He accused Mr Obama of rejecting sensible plans proposed by Republican congress members.

Mr Boehner said Obama's administration was spending more money than it was taking, and Obama's health care reform and stimulus package were both ineffectual and not desired by the American public.

He described the President's plans as a "blank cheque".

"The US cannot default. The jobs and savings of too many Americans are at stake."

Boehner said the "Cut, Cap and Balance" Bill, which was last week passed by the Republican-led House, would solve the problem.

"Before we passed the bill the President said he would veto," he said.

Boehner was confident the Republican bill, which he said had bi-partisan support, would pass through the Senate.

"If the President signs it, the crisis atmosphere that he created would disappear."

Washington hit its debt ceiling on May 16 but has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally.

However it can only do so through to August 2.

- with AFP