President Obama is meeting with Senate Democrats on Wednesday to discuss how to address the country's long-term deficit; he'll follow up Thursday in a meeting with Senate Republicans. The meetings come days before the federal government is expected to start bumping up against its debt ceiling. But so far, the financial markets don't seem overly worried.
Top lawmakers from both parties agree that sooner or later they'll have to vote to raise the debt limit. But the vote may come at a price.
Republican House Speaker John Boehner told the Economic Club of New York earlier this week that he's holding out for big cuts in federal spending — cuts measured not in billions of dollars, but in trillions.
"Without significant spending cuts and changes in the way we spend the American people's money, there will be no increase in the debt limit," Boehner said.
The only practical way to achieve spending cuts of the size Boehner is talking about is to go after popular entitlement programs, such as Medicare.
Boehner says those programs should be on the negotiating table, along with every other part of the budget — except for one thing.
"I've made it pretty clear that raising taxes is off the table," Boehner said. "Raising taxes on the very people that we expect to invest in our economy and create jobs will have a devastating impact on our ability to balance the budget."
Senate Republican leader Mitch McConnell made the same point on Capitol Hill on Tuesday.
"The American people clearly believe we have the deficit problem because we spend too much, not because we tax too little," McConnell said.
Federal spending as a share of the overall economy is at its highest level since World War II, while tax revenues are at their lowest level since 1950.
White House spokesman Jay Carney told reporters traveling aboard Air Force One on Tuesday that the best way to attack the deficit is from both sides.
"The president believes that we need to achieve that $4 trillion in deficit reduction in a balanced way," Carney said, "not solely by cutting entitlements and eliminating, in the case of the House Republican plan, the Medicare guarantee to our seniors."
What's adding a sense of urgency to these budget talks is the fact that the federal government is about to bump up against its self-imposed limit on borrowing money.
Treasury Secretary Timothy Geithner estimates that the government will hit that limit as early as next Monday. By moving money around, he says, he can buy some extra time for lawmakers to raise the ceiling, but not too much time.
White House budget director Jack Lew has urged Congress to resist the temptation to postpone action until the last possible minute.
"It will be a very bad thing if all the cable TV stations have countdown clocks to government default," Lew said. "The fact of anticipation would in itself undermine our position as an economic power. So nobody should be playing chicken with the debt limit. We should get it done. We should get it done soon, early, and get it out of the way."
House Speaker Boehner acknowledged in this week's speech that even debating the debt ceiling increase makes some people in the financial community uneasy.
But if Wall Street is nervous, it's not showing it. The relatively low yield on Treasury notes suggests investors are still comfortable owning U.S. debt.
Economist Francisco Torralba of Morningstar says financial markets fully expect lawmakers to come around on the debt ceiling after a period of political posturing.
"Everyone understands that it's just a matter of time and a matter of negotiating before we see a raise on the debt ceiling," Torralba said. "It is not conceivable that the U.S. would default. I think it's widely understood that it's just a matter of squabbling between the two parties."
Last week, Geithner told lawmakers that thanks to better-than-expected tax revenues, the real crunch point for the government won't come until early August — some three weeks later than he had predicted last month.
That means extra time for the White House and Congress to reach a compromise on budget issues. But it also means the partisan posturing could continue for a couple more months.