President Barack Obama warned of a “deep economic crisis”without a compromise to avert an Aug. 2 U.S. default as he dueledRepublican House Speaker John Boehner in back-to-back speeches onincreasing the debt limit.

“We can't allow the American people to become collateral damageto Washington's political warfare,” Obama said. Moments later,Boehner responded that the president “wants a blank check” tocontinue government spending that is “sapping the drive of ourpeople.”

Obama delivered his message yesterday in a prime-time televisionaddress from the White House, a ritual in moments of crisis andnational tragedy, on a day cable television networks airedcountdown clocks to default. Boehner spoke afterward from the U.S.Capitol.

Earlier in the day, Boehner, an Ohio Republican, and theDemocratic leader in the Senate, Harry Reid of Nevada, unveiledcompeting plans to raise the $14.3 trillion debt limit.

Obama invoked Republican Presidents Ronald Reagan and GeorgeH.W. Bush to back up his call for shrinking the nation's long-termdeficit using a “balanced approach” of spending cuts and taxincreases on the wealthy. As Reagan often did in confrontationswith Congress, he urged Americans to contact their lawmakers tosupport the stance.

The president said he is “confident” a deal can be reached.

As the two men spoke in turn, the dollar weakened against mostof its major peers and U.S. equity-index futures fell. The U.S.currency slid 0.3 percent against the Swiss franc and the yen as of10:37 a.m. in Tokyo. Standard & Poor's 500 Index futures lost0.4 percent.

Dueling Plans
While Democrats andRepublicans in Congress sharpened their attacks on each other,Boehner and Reid narrowed some of the differences in the approachesby the two parties.

Reid dropped Democrats' insistence on tax increases in the planhe offered yesterday. His and Boehner's proposals take as theirstarting points $1.2 trillion in discretionary spending cuts over10 years and both establish bipartisan committees to recommendfuture savings, with a guaranteed vote in Congress.

“The general parameters seem to be shaping up,” said PatrickGriffin, who was President Bill Clinton's chief congressionallobbyist from 1994 to 1996. “But there are a lot of big issues thatneed to be resolved.”

The two sides are divided on a Republican demand for a seconddebt limit vote tied to another $1.8 trillion in budget cuts thatlikely would come early next year, just as 2012 election campaignsare gearing up. Democrats would extend the debt ceiling until 2013while making $2.7 trillion in total spending cuts, which includes$1 trillion from winding down the Iraq and Afghanistan wars, asavings Republicans criticized as a gimmick.

'Better Path'
Obama endorsed Reid'sproposal as “a much better path,” though it doesn't include the taxrevenue increase that the president said is needed to address thedeficit. He criticized Boehner's plan as “kicking the can furtherdown the road.” He said the two sides need to arrive at “a faircompromise.”

Boehner said he made a “sincere effort” to work with Obama toreach a deal.

“And the sad truth is that the president wanted a blank checksix months ago, and he wants a blank check today,” Boehner said.“This is just not going to happen.”

Reid and Boehner confront challenges in their own chambers. Reidneeds at least some Republican support to get the 60 votesnecessary to overcome a filibuster. Boehner's Republican majorityin the House is undercut by members of the party who oppose anydebt increase or want deeper spending cuts.

Republican Resistance
“There is asignificant number that have real problems with this bill,” saidOhio Representative Jim Jordan, chairman of the fiscallyconservative Republican Study Committee.

Senator Jon Kyl of Arizona, the No. 2 Republican leader, saidleaders in both parties recognize it isn't ideal for each chamberto move rival bills that may not have enough support to pass.

“If we can reach an agreement before there is a vote, that wouldbe a good thing,” Kyl said after a meeting of Senate Republicans.“I don't know that we can. But then again, both proposals might bemodified a little bit or you could get bipartisan agreement.”

As the stalemate in Washington continued through the day, U.S.stocks and Treasuries declined. The Standard & Poor's 500 Indexslipped 0.6 percent to 1,337.43 in New York after losing as much as1 percent. The 30-year Treasury yield rose six basis points to 4.32percent, and 10-year yields added four points to 3.01 percent,still below the 10-year average of 4.06 percent.

Debt Rating
Treasury two-week yieldsreached a two-week high after Mohamed A. El-Erian, whose PacificInvestment Management Co. runs the world's biggest bond fund, saidthe U.S. may lose its AAA debt rating even if lawmakers reach aplan to avoid a default.

El-Erian said in an interview yesterday on Bloomberg Televisionthat it will be a “big, big mess” if the U.S. defaults, spurring asell-off in equities, the U.S. dollar and commodities excludinggold.

“Remember there is no other country that can step in to replacethe U.S.,” said El-Erian, the Newport Beach, California-based chiefexecutive officer and co-chief investment officer at Pimco. “TheU.S. is the supplier of the reserve currency. The U.S. is theprovider of a financial system that intermediates other people'ssavings and investments. The U.S. is an AAA. The question iswhether the U.S. can maintain an AAA.”

The cost of insuring U.S. debt rose, sending credit-defaultswaps on Treasuries up three basis points to 56.15, approaching thehighest in 17 months, according to CMA Analytics.

This year's vote would be the 101st time since 1940 that thedebt limit has been changed. Congress last raised the federal debtlimit by $1.9 trillion in February 2010. The thenDemocratic-controlled House approved the increase by a vote of233-187. The Democratic-run Senate approved the increase in January2010 by a vote of 60-39.

Bloomberg News

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