U.S. House Speaker John Boehner broke off talks with President Barack Obama on Friday on a deficit-reduction deal to prevent a devastating default and said he would try to hammer out an agreement through the Senate.
In a dramatic turn of events with the deadline to raise the U.S. debt ceiling just 11 days away, a stern-faced Obama expressed frustration at the Republican leader's move, saying it was "hard to understand why Speaker Boehner would walk away from this kind of deal."
Boehner, in a letter to fellow lawmakers, said he and Obama were unable to reach agreement on a broad deficit reduction package they had been negotiating and that the two "had different visions for our country."
A deep divide over tax revenue was at the heart of the collapse in negotiations, which derailed an effort to craft a sweeping $3 trillion deficit-cutting plan that now seems beyond reach. Both sides blamed the other for the impasse.
With the Aug. 2 deadline fast approaching for Congress to increase the $14.3 trillion debt ceiling, Boehner said he would begin talks with Senate leaders to "in an effort to find a path forward." An aide said a deal needs to be set by Monday.
"We have now run out of time," Obama told reporters. He insisted he had made an "extraordinarily fair" offer to Boehner but when the Republican stopped returning his calls on Friday it became clear that he would not accept it.
The president said he was summoning Democratic and Republican leaders to the White House on Saturday in a last-ditch effort to find a path forward on raising the debt limit.
Failure to act could push the United States back into recession and unleash global financial chaos.
Obama warned that failure to reach an agreement on the debt ceiling would also increase the chance of a harmful downgrade in America's top-notch credit rating.
Putting the onus on Obama, Boehner said: "The president is emphatic that taxes have to be raised. As a former small businessman, I know tax increases destroy jobs.
Mohamed El-Erian, co-chief investment officer at Pacific Investment Management Co., which oversees $1.2 trillion in assets, told Reuters: "If not reversed within the next few days through crisis negotiations, this breakdown will be highly detrimental to the already-fragile health of both the US and global economies."
The rancorous breakdown in talks came after Obama earlier Friday said he was prepared to make "tough choices" for a sweeping deficit-reduction deal to avert a default, despite Democrats warning him not to make too many concessions.
The Democratic president at the time appealed for compromise by both parties as he and Boehner, the top Republican in Congress, pursued a plan for up to $3 trillion in spending cuts.
Obama had faced increasingly vocal complaints from his own Democrats on a deal-in-the-making that could mean painful curbs in popular health and retirement programs but no immediate increase in taxes.
Republicans have refused to accept a deal for raising the debt limit if it includes revenue increases.
Attention now turns to the Senate, where negotiations are likely to resume on a convoluted plan put forth by Republican Senate leader Mitch McConnell that intended as a fallback option if all else failed.