Smalls signs of debt limit progress

WASHINGTON -- With time growing short and warnings more dire, the first, fragile signs emerged yesterday of a possible compromise to raise the nation's debt limit and avert a potentially catastrophic default on Aug. 2.

Under a more elaborate version of a plan Republican leader Mitch McConnell of Kentucky suggested earlier in the week to a less-than-enthusiastic reception from conservatives, President Barack Obama would receive enhanced authority to raise the debt limit while procedures would be set in motion that could lead to federal spending cuts.

Word that Majority Leader Harry Reid (D-Nev.) and McConnell were at work on the fallback plan came as Federal Reserve Chairman Ben Bernanke and JPMorgan Chase chief executive Jaime Dimon admonished bickering lawmakers that failure to avoid an unprecedented default could have a devastating effect on an already anemic U.S. economy.

One option under discussion by the Senate leaders is creation of a group of lawmakers who could recommend spending cuts, possibly including changes in benefit programs, that would be guaranteed a yes-or-no vote in Congress.

Another would be to couple any presidential request for a debt increase with spending cuts, including some that have emerged in private talks led first by Vice President Joe Biden and now by Obama.

The seriousness of the situation was underscored throughout the day, the fifth in a row of White House meetings on the debt.

Testifying before a Senate panel, Bernanke said a default would deal a "self-inflicted wound" to the nation's economy, driving up interest rates and slowing recovery from the deep recession.

The credit rating agency Standard & Poor's warned Thursday that there is a 50 percent chance it will downgrade the U.S. government's credit rating within three months because of the congressional impasse over approving an increase in the debt ceiling.

Dimon, speaking to reporters in New York, said default could prove catastrophic. "Why take that chance? I wouldn't take that chance," he said, answering his own rhetorical question.