Obama, congressional leaders still deadlocked on shutdown


* Meeting ends with both sides blaming the other

* Concerns grow over looming debt limit deadline

* Obama scales back Asia trip

* United Technologies warns of layoffs due shutdown

By Jeff Mason and Thomas Ferraro

WASHINGTON, Oct 2 (Reuters) - President Barack Obama metwith Republican and Democratic leaders in Congress on Wednesdayto try to break a budget deadlock that has shut wide swaths ofthe federal government, but there was no breakthrough and bothsides blamed each other.

After more than an hour of talks, House of RepresentativesSpeaker John Boehner said Obama refused to negotiate, whileHouse Democratic Leader Nancy Pelosi and Senate Majority LeaderHarry Reid accused Republicans of trying to hold the presidenthostage over Obamacare.

Reid said Obama told Republicans "he will not stand" fortheir tactics. The White House later issued a statement sayingthat Obama remains hopeful that "common sense will prevail."

There was little to encourage hope for a quick solution tothe two-day-old shutdown and hundreds of thousands of federalemployees remained off the job without pay.

Leaders of the Republican-controlled House ofRepresentatives and the Democratic-led Senate offered tokenconcessions that were quickly dismissed by the other side.Obama, meanwhile, scaled back a long-planned trip to Asia.

Republicans have tried to tie continued government fundingto measures that would undercut Obama's signature healthcarelaw. Obama and his Democrats say that is a non-starter.

"The president reiterated one more time that he will notnegotiate," Boehner told reporters after the White Housemeeting. "All we're asking for here is a discussion and fairnessfor the American people under Obamacare."

Reid said Democrats were willing to discuss any way totackle the budget after a temporary funding bill is passed."We're through playing these little games," he said.

"My friend John Boehner ... cannot take yes for an answer,"he told reporters.

The shutdown, which took effect Monday at midnight (0400 GMTTuesday), has raised questions about Washington's ability tocarry out its most essential duties.

Though it would do relatively little damage to the world'slargest economy in the short term, global markets could beroiled if Congress also fails to raise the debt limit beforeborrowing authority runs out in coming weeks.

The shutdown has closed landmarks like the Grand Canyon, cutoff government economic data reports and prevented some cancerpatients from receiving cutting-edge treatment.

United Technologies Corp, which makes Sikorskyhelicopters and other items for the military, said it would beforced to furlough as many as 4,000 employees if the U.S.government shutdown continues through next week, due to theabsence of government quality inspectors.


"Am I exasperated? Absolutely I'm exasperated. Because thisis entirely unnecessary," Obama told CNBC television in aninterview before meeting the congressional leaders. "I amexasperated with the idea that unless I say to 20 millionpeople, 'You can't have health insurance,' these folks will notreopen the government. That is irresponsible."

The U.S. Army's top general said the shutdown wassignificantly harming day-to-day operations, and intelligenceleaders say it is undermining their ability to monitor threats.A Federal Reserve official said it could delay the centralbank's ability to assess whether its monetary stimulus effortsare still needed.

The uncertainty in Washington has forced Obama to scale backan Asia trip that was designed to reinforce U.S. commitment tothe region.

Despite the shutdown, Boehner's Republicans have failed toderail Obama's controversial healthcare law, which passed amilestone on Tuesday when it began signing up uninsuredAmericans for subsidized health coverage.

The government on Wednesday scrambled to add computercapacity to handle an unexpectedly large number of Americanslogging onto new online insurance marketplaces.

Senate Republican leader Mitch McConnell, speaking to CNBC,described the law as a "trainwreck" that was "creating havocacross the country," and reiterated Republicans' call for aone-year delay in its implementation.

Though some moderate Republicans have begun to questiontheir party's strategy, Boehner so far has kept them unitedbehind a plan to offer a series of small bills that wouldre-open select parts of the government most visibly affected bythe shutdown.

The Republican-controlled House passed and sent to theSenate on Wednesday a funding bill that would re-open theNational Institutes of Health, which conducts medical research,and another bill to reopen shuttered federal parks and museums,such as the Smithsonian museums, the National Gallery of Art andthe Holocaust Memorial Museum in Washington.

Both bills passed with the support of about two-dozenDemocrats, who joined Republicans. The House was expected tovote Thursday on measures to fund veterans' care, the Districtof Colombia and the Army Reserve.

The measures are likely to be defeated in theDemocratic-controlled Senate, and Obama said he would veto themif they reached his desk.

Still, they allowed Republicans to charge that theiradversaries are standing in the way of help for elderly veteransand young cancer patients. "Will they now say 'no' to fundingfor veterans, our National Parks and the National Institutesof Health?" asked Boehner spokesman Michael Steel.

A Reuters/Ipsos poll indicated that 24 percent of Americansblamed Republicans for the shutdown, while 19 percent blamedObama or Democrats. Another 46 percent said everyone was toblame.


The shutdown fight is rapidly merging with a higher-stakesbattle over the government's borrowing power that is expected tocome to a head soon.

Treasury Secretary Jack Lew has said the United States willexhaust its $16.7 trillion borrowing authority no later thanOct. 17.

The government could have difficulty paying pension checks,interest charges and other bills after that point.

Many Republicans see the debt limit vote as anotheropportunity to undercut Obama's healthcare law or extract otherconcessions - an approach that business groups say could lead todisaster.

"You can re-litigate these policy issues in a politicalforum, but they shouldn't use the threat of causing the U.S. tofail on its ... obligations to repay on its debt as a cudgel,"Goldman Sachs chief executive Lloyd Blankfein toldreporters after he and other financial-industry executives metwith Obama.

Some Democrats have begun to consider asking Obama tounilaterally raise the debt ceiling on his own - a move thatcould lead to years of court battles. The White House has saidthat approach is not feasible.

The U.S. dollar stayed under pressure as Asian trading beganon Thursday while share markets flatlined.

Obama said Wall Street should be worried about the debtceiling. "I think this time's different. I think they should beconcerned," Obama told CNBC. "When you have a situation inwhich a faction is willing potentially to default on U.S.government obligations, then we are in trouble."

A short-term shutdown would slow U.S. economic growth byabout 0.2 percentage points, Goldman Sachs said on Wednesday,but a weeks-long disruption could weigh more heavily - 0.4percentage points - as furloughed workers scale back personalspending.

The last shutdown in 1995 and 1996 cost taxpayers $1.4billion, according to congressional researchers.

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