Obama warns on debt, deal elusive after talks

(Reuters) - President Barack Obama warned on Tuesday that elderly Americans could suffer first from a debt default, raising pressure on lawmakers as prospects for a deal to lift the debt ceiling appeared far from reach.

The president and congressional leaders met at the White House for the third time in as many days, working to break a logjam over taxes and spending cuts before August 2. when the Treasury says it will run out of money to pay all of the country's bills.

Obama, who has said he would meet every day this week, will convene more debt talks on Wednesday at 4 p.m. EDT.

Republicans have balked at raising the debt limit without a deficit-cutting deal, but their leader in the Senate, Mitch McConnell, proposed a backup plan that would give Obama the option of raising the ceiling while avoiding spending cuts.

McConnell's complicated maneuver would also allow Republicans to duck a politically painful debt limit vote.

As politicians sparred, business leaders pressed Washington to act swiftly to raise the $14.3 trillion debt ceiling or risk derailing a sputtering economic recovery and endangering the global financial system.

Obama told CBS television in an interview that checks to recipients of the Social Security retirement program may not go out in early August if he and congressional leaders do not hammer out an agreement.

"I cannot guarantee that those checks go out on August 3rd if we haven't resolved this issue," Obama said, according to excerpts of the interview released before its broadcast.

"There may simply not be the money in the coffers to do it," Obama said. He said veterans checks and disability benefits could also be affected without a deal.

Obama's warning that senior citizens -- an active voting group -- could suffer first if a deal was not reached could give lawmakers a nudge ahead of 2012 elections.

Reacting to Obama's comments, House Speaker John Boehner questioned whether Social Security checks would be cut off, asserting that the Treasury can prioritize payments.

"I think it's way too early to be making some type of veiled threats like that," Boehner said on Fox News.

Seniors punished Democrats last year for including Medicare cuts in their healthcare package and then turned on Republicans in a special New York election this year over a Republican plan to overhaul the government healthcare program for the elderly.

It also evoked memories of the debt limit crisis of 1996 when Treasury Secretary Robert Rubin warned he would not be able to send out Social Security pension checks the next month if the ceiling were not raised. The Republican-controlled House immediately voted to allow the government to issue more debt to make those payments.

LITTLE PROGRESS

Failure to seal a deal by August 2 could spook investors globally, causing interest rates to surge and stock prices to plummet, putting the United States at risk of another recession, Treasury officials and economists have warned.

As he laid out his debt-limit backup plan, McConnell said a "real solution" to the U.S. debt problem was unlikely while Obama was in office.

Obama, in the CBS interview, chalked that up to "partisan politics," and White House spokesman Jay Carney said it was important to stay focused on a "unique opportunity to come to agreement on significant, balanced deficit reduction."

Carney also welcomed what the White House saw as a recognition by McConnell "that defaulting on America's past due bills is not an option."

A Democratic official close to the negotiations said Obama made a similar point about the McConnell plan during Tuesday's nearly two-hour meeting with congressional leaders.

The official, who spoke on condition of anonymity, said that after two tense meetings that focused on process, Obama sought to tone down the rancor and refocus the discussion on the substance of the deficit-reduction proposals.

McConnell's idea would allow only one-third of Congress -- presumably Democrats -- to raise the debt ceiling. Under the proposal, Congress would reject Obama's debt-limit request, and Obama would veto the rejection. If Congress failed to muster the two-thirds vote needed to override a veto, the debt limit would effectively be lifted by the amount Obama requested.

Treasury Secretary Timothy Geithner, who has warned of catastrophic consequences if Congress fails to raise the debt ceiling, held firm on Tuesday to vows that the United States would not default. "Failure is not an option," he said.

New York Mayor Michael Bloomberg, mentioned as a possible successor to Geithner, also weighed in on the debate, saying a default would damage the U.S. credibility around the world.

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