President Barack Obama will warn Americans on Monday that failure to reach a political compromise in Congress to raise the debt ceiling will do incalculable damage to the United States.
Deadlock over dueling debt plans presented by Democratic and Republican leaders has raised the risk of a credit ratings downgrade and national default. The White House said the president would emphasize these dangers in a 9 p.m. EDT address to the nation.
President Obama, like Democratic and Republican presidents before him, will make clear that failure to compromise and raise the debt ceiling would, in the words of former President (Ronald) Reagan, do 'incalculable damage', a White House official said.
Little more than a week before the August 2 deadline to raise the $14.3 trillion debt ceiling, Republican and Democratic leaders traded blame in an acrimonious standoff as they pursued separate budget proposals, with no clear path to bring them together.
With eight days until deadline, compromise is the only reasonable path ahead to keep our economy strong and growing, the White House official said in a preview of Obama's speech.
In his seventh address to the nation since he took office in 2009, Obama was to lay out the harmful consequences for economic stability and job creation if the impasse over the debt ceiling and deficit reduction is not resolved.
The stalemate is rattling investors worldwide, sending stocks and the dollar down and pushing gold to a record high, but falling far short of the panicky sell-off some politicians in Washington had feared after weekend talks broke down.
But fears of the consequences of a continuing failure by the ideologically divided Congress to thrash out an agreement were rising, and Obama's speech was expected to be closely watched by Asian markets as they opened.
They are playing with fire and they could well be burned. No compromise would put us in unknown and dangerous territory at a very delicate moment for the world economy, said Carlos Vegh, economics professor at the University of Maryland.
WORLD SHAKING THEIR HEADS
While administration officials have called a U.S. government default -- it would be the first in history -- unthinkable, the showdown risks badly denting the image in global markets of the world's largest economy and only superpower, and threatening its recovery from recession.
I think it's incredibly damaging. I think the rest of the world looks at the United States and is just shaking their heads, said Michael Yoshikami, chief executive and founder of Walnut Creek, California-based YCMNET Advisors, which has $1.1 billion in funds under management.
Obama has used previous addresses to deal with major national issues like the war in Afghanistan and the killing of Osama bin Laden.
Republicans in the House of Representatives unveiled details of a two-stage deficit reduction plan that would start with an initial $1.2 trillion in savings over 10 years. Obama is sure to oppose it because it would raise the debt limit for only a few months, something he has said he will not agree to.
Obama's Democrats presented their plan for $2.7 trillion in deficit reduction over the next decade but with a debt limit hike that would carry through the November 2012 elections, when Obama and many lawmakers are up for re-election.
Republicans control the House and Democrats control the Senate.
Republican House Speaker John Boehner, under pressure from first-term lawmakers aligned with the fiscally conservative Tea Party movement, dismissed the Democratic plan as full of gimmicks. Senate Democratic Leader Harry Reid insisted extremists within the Republican Party must not be allowed to dictate the outcome of the debt impasse.
Neither plan may be enough to avert a downgrade by ratings agency S&P, which has indicated it wants to see a $4 trillion deficit reduction plan over 10 years. Critics said both sides appeared more interested in scoring political points than forging compromise.
Joining a growing chorus of global concern, the International Monetary Fund urged swift U.S. action on its debt to avert broad negative fallout.
Singapore sovereign wealth fund GIC said it saw a long-term U.S. debt problem and Ng Kok Song, GIC's group chief investment officer, said it was not simply a question of whether Congress was able to lift the borrowing ceiling in time, the Straits Times newspaper reported.
A lower credit rating could raise borrowing costs not only for the U.S. government but also for other countries, companies and consumers because U.S. Treasuries are the benchmark by which many loans are measured.
(Additional reporting by Richard Cowan, Caren Bohan, Alister Bull, Laura MacInnis, Deborah Charles, Pedro Nicolaci da Costa in Washington, Ryan Vlastelica in New York, Emily Kaiser in Singapore, Yoo Choonsik in Seoul; Writing by Matt Spetalnick and Pascal Fletcher)