House Passes, Senate Rejects GOP Debt-Ceiling Plan

The Republican-led House passed legislation Friday night to prevent a calamitous U.S. default next week, but the Democrat-controlled Senate quickly voted to kill the measure.

The White House and Senate Democrats called for compromise while criticizing the Republican plan. Senate Democratic leader Harry Reid signaled he would push ahead with his own plan, but it, too, had little chance of passing when it reaches the House of Representatives.

However, both the Republican and Democratic bills could provide the basis for behind-the-scenes talks by congressional leaders aimed at finding a bipartisan compromise that could win approval in both chambers before Tuesday's deadline to raise the ceiling, which is currently $14.3 trillion.

The top Republican in the House, Speaker John Boehner, had hastily reworked his proposal to cut spending and raise the government's borrowing authority after opposition from his party's most conservative members forced him to postpone votes twice in two previous days.

The House vote was 218-210, almost entirely along party lines. The Senate voted 59-41 to set aside the House bill, with all Democrats, two independents and six Republicans joining in opposition to the Boehner plan.

The House plan would have provided a quick $900 billion increase in U.S. borrowing authority — essential to allow the government to continue paying all its bills along with $917 billion in cuts from federal spending. It was rewritten hastily overnight to say that before any additional increase in the debt limit could take place, Congress must approve a balanced budget-amendment to the Constitution and send it to the states for ratification.

"Today we have a chance to end this debt limit crisis," Boehner said.

If Congress fails, the government would run out of money after Tuesday. Lacking the authority to take on more debt, it would be unable to pay some of its obligations. A default would lower the U.S. credit rating, which would have a ripple effect on the global economy and send interest rates soaring. Already, concerns about the impasse have sent world stock markets spiraling lower.

Executives from the country's biggest banks met with U.S. Treasury officials to discuss how debt auctions will be handled if Congress fails to raise the borrowing limit before Tuesday's deadline.

But White House spokesman Jay Carney said the administration did not plan to provide the public with details Friday on how the government will prioritize payments.

The day's economic news wasn't very upbeat to begin with — an economy that grew at an annual rate of only 1.3 percent in the second quarter of the year.

Investors weren't impressed with either the economy or the efforts in Washington. Stocks continued a weeklong slide that erased nearly 540 points from the Dow Jones industrial average. The Dow closed with a loss of 97 points, or 0.8 percent, to 12,143.

At the White House, Obama cited the potential toll on the economy as he urged lawmakers to find a way out of gridlock, declaring that "we're almost out of time."

"The power to solve this is in our hands on a day when we've been reminded how fragile the economy already is," the president said from the White House, as U.S. stocks fell in response to a sour report on economic growth and widespread uncertainty over the Washington debt stalemate. "This is one burden we can lift ourselves. We can end it with a simple vote."

Obama has rejected any proposal that, like the Republican plan, would come up with a short-term debt limit increase and bring the issue up again before the 2012 elections, saying it would lead to more political wrangling.