Obama, congressional leaders seek leverage from economic jolt

The jolt to America’s prestige as an economic superpower so far has only hardened positions in Washington, as President Obama and congressional leaders are seeking to use the downgrade in America’s credit rating to gain leverage in the next round of the battle over the federal debt.

Obama spoke Monday at midday, as the Dow was skidding toward a 634-point drop, and portrayed Standard & Poor’s decision to downgrade U.S. credit on Friday as proof that political paralysis “could do enormous damage to our economy and the world’s.”

In his first public comments since S&P cut America’s coveted AAA credit rating to AA+, Obama said the nation could reduce its deficit and jump-start the economic recovery if there was “political will in Washington.” He called upon the nation’s political leadership to stop “drawing lines in the sand.”

But by day’s end, there was no indication that compromise was in the offing. Indeed, House Majority Leader Eric Cantor (R-Va.) sent a memo to House Republicans on Monday urging them to hang tough.

“There will be pressure to compromise on tax increases. We will be told that there is no other way forward. I respectfully disagree,” Cantor wrote. Spending, he said, must be reduced: “This is why we were elected.”

The No. 3 Democrat in the House, James E. Clyburn of South Carolina, made clear his party’s view that a deficit reduction package must involve “shared sacrifice” — code for tax revenue increases.

Congressional leaders have until next week to appoint a “super committee” of 12 lawmakers — six from each party — to come up with a proposal to cut the federal deficit by at least $1.2 trillion by Nov. 23. If the new committee deadlocks, or if it makes recommendations that Congress fails to pass, 10 years of cuts in federal agency budgets would be triggered automatically, including a steep decline in Pentagon spending.

With differences over spending and taxes appearing unbridgeable, it may take the 2012 election to end the impasse. Voters may provide the answer to a question that has consumed Washington for months: Which side has the best approach to relieve the U.S. debt crisis?

A foreshadowing of the 2012 race may come Tuesday in Wisconsin as voters go to the polls: Half a dozen Republican state senators face a recall election that could put Democrats back in control of the upper chamber.

The contest in Wisconsin, an important swing state, is partly a referendum on the policies of Republican Gov. Scott Walker, who signed a bill this year stripping many public workers of collective bargaining rights. But both sides have also cast the fight as part of the larger, national struggle between Democratic and Republican approaches.

Obama, speaking from the White House State Dining Room, said he hoped the rating downgrade would prod both parties to seek a compromise. He also sought to reassure nervous investors that the U.S. remains a “AAA country.”

People seem worried. A CNN poll released Monday found that 60% believed the U.S. remained in an economic downturn with conditions continuing to worsen. Only 36% believed that in April. Just 24% believed things are going well in the U.S., compared with 75% who believed things are going badly, the poll showed.

Both parties say they want to create jobs, but again, there is no consensus on how to go about it.

Obama reiterated his call for extending a payroll tax cut that expires at the end of the year. He also called for extending unemployment insurance benefits and reviving the hard-hit construction industry by rebuilding the nation’s highways, bridges and ports.

Republicans already have dismissed some of the proposals this year. And GOP lawmakers have no appetite for anything that smacks of new spending.

“On job creation, we need to reduce the regulatory burden, prevent tax hikes and make it easier — not harder — for job creators to start hiring again,” said Sen. Mitch McConnell of Kentucky, the Republican leader, in a statement after the president’s remarks. “The country needs economic growth and fiscal responsibility, not higher taxes and new Washington spending and regulations.”

Action will have to wait, though. Congress is in recess until after Labor Day, and Obama is not asking lawmakers to come back early.

Some wish he would take that step.

Robert Reich, who was Labor secretary under President Clinton, said in an interview: “For the good of the country and for his own political future, he’s got to be seen as making jobs his first and major priority. And I fear he’s not doing that.”

peter.nicholas@latimes.com

Lisa Mascaro in the Washington bureau contributed to this report.