Obama Calls for Stimulus in Debt Talks

U.S. President Barack Obama called on Wednesday for new job-creation measures that are likely to further complicate talks with Republicans to bring the country's debt under control.

Obama said Congress should approve loans to encourage construction spending and consider a payroll tax break and other measures to bring down the 9.1 percent unemployment rate.

``It makes perfect sense for us to take a look at, can we extend the payroll tax, for example, an additional year, and other tax breaks for business investment that could make a big difference in terms of creating more jobs right now,'' he told a White House news conference.

Those measures likely would add hundreds of billions of dollars to budget deficits at a time when the White House and lawmakers are trying to narrow them by more than $1 trillion. Congressional Republicans oppose those measures and say they have no place in the talks.

``In the middle of a debt crisis, they want to borrow and spend more money as a solution to the problem. This isn't a negotiation, this is a parody,'' Senate Republican Leader Mitch McConnell said earlier on the Senate floor.

With budget talks at a standstill, Treasury Secretary Timothy Geithner said he would not be able to stave off default if Congress does not reach a deal to raise the $14.3 trillion debt ceiling by Aug. 2.

The International Monetary Fund also said failure to reach a deal soon could deliver a ``severe shock'' to a still-fragile recovery and global markets. [ID:nN1E75S0KD]

Obama and congressional Republicans are deadlocked over whether tax increases should be part of a spending-cut deal that would give lawmakers political cover to extend the government's borrowing authority.

Financial markets have so far shown little concern, but that could change if a deal doesn't emerge in the coming weeks.

Geithner said investors would still shun U.S. debt after the August deadline even if Treasury made debt payments its top priority -- an approach backed by many Republicans.

``Ultimately, the notion of 'prioritizing' payments is futile because the debt limit must be increased regardless of which spending path is adopted,'' he wrote in a letter to congressional Republicans.

``There is no credible budget plan under which a debt limit increase can be avoided.''

Obama is due to meet with top Senate Democrats later on Wednesday to discuss the deficit reduction negotiations, which stalled last week. He has already met with top Republicans but no follow-up meetings have been set.

(Writing by Andy Sullivan; additional reporting by David Morgan, Glenn Somerville, Patricia Zengerle and Alister Bull)