Obama appeals to nation on debt impasse

President Obama asks the nation to support his proposal to cut the deficit and raise the debt ceiling.

WASHINGTON (CNN) -- Congress is at a stalemate over raising the federal debt ceiling, and Americans need to pressure their elected representatives to work out a compromise that will avoid a potentially devastating default, President Obama told the nation Monday night.

In his seventh prime time televised address, Obama sought to increase pressure for congressional leaders to reach a deal that would allow the government to continue borrowing money pay its debts after Aug. 2.

The president singled out House Republicans for intransigence and said the political showdown is "no way to run the greatest country on Earth."

"The American people may have voted for divided government, but they didn't vote for a dysfunctional government," Obama said. "So I'm asking you all to make your voice heard. If you want a balanced approach to reducing the deficit, let your member of Congress know. If you believe we can solve this problem through compromise, send that message."

If Congress fails to raise the $14.3 trillion debt limit by Aug. 2, Americans could face rising interest rates and a declining dollar, among other problems. As the cost of borrowing rises, individual mortgages, car loans and student loans could become significantly more expensive.

Officials also warn that, without an increase in the debt limit, the federal government will not be able to pay all its bills next month. Obama recently indicated he could not guarantee Social Security checks would be mailed out on time.

Months of increasingly tense negotiations have failed to bring a deal that can win approval from all of the necessary players -- the Republican-led House, Democratic-led Senate and the White House.

The talks initially involved a broad deficit-reduction plan intended to reduce the mounting gap between how much the government spends and how much revenue it collects.

In his response to Obama's speech, House Speaker John Boehner said the president's proposals fail to deal with the fundamental problem: that the nation spends more than it takes in.

"The sad truth is that the president wanted a blank check six months ago, and he wants a blank check today," Boehner said. "That is just not going to happen."

House Republicans, buoyed by conservative tea party support that helped them win a majority in last November's congressional elections, have successfully linked the deficit reduction talks with the need to raise the debt ceiling due to increased government spending.

Obama and Democrats argue the debt ceiling should be a separate issue free of political wrangling because it involves the credit of the United States and can potentially impact the U.S. and global economies.

On Monday, Democratic and Republican congressional leaders unveiled separate new proposals that the other side quickly rejected, demonstrating the cavernous partisan divide that exists.

Both plans -- one by Senate Majority Leader Harry Reid, a Nevada Democrat, and the other by House Speaker John Boehner, an Ohio Republican -- provide a path to raise the debt ceiling through the end of 2012, but they differ in scope and over key components involving requirements for future congressional action.

Obama endorsed Reid's plan, but acknowledged it has little chance of getting passed in the House, just as the competing Republican plan unveiled by Boehner is unlikely to get passed by the Senate.

The president pushed for the two parties to work out an acceptable deal, and called for Americans to demand that their congressional representatives put aside short-term politics to reach a compromise.

Reid's blueprint calls for roughly $2.7 trillion in spending cuts over the next decade while raising the debt limit by $2.4 trillion -- an amount sufficient to fund the government through 2012, which means past next year's election.

The plan excludes major provisions of a comprehensive deficit-reduction strategy, such as increased revenue and reforms to politically popular entitlement programs -- such as Medicare, Medicaid and Social Security -- that face skyrocketing growth in costs.

Specifically, Reid's plan includes $1.2 trillion in savings from various domestic and defense programs, along with $1 trillion in savings from winding down the wars in Iraq and Afghanistan. It also generates $400 billion in interest savings on the debt, and another $40 billion by rooting out waste, fraud and abuse.

It also would establish a congressional committee made up of 12 House and Senate members to consider additional options for debt reduction. The committee's proposals would be guaranteed a Senate vote with no amendments by the end of the year.

Obama immediately endorsed the Reid plan, with White House Press Secretary Jay Carney calling it a "responsible compromise ... that should receive the support of both parties."

Reid stressed that his plan doesn't include tax hikes and would cut spending more than it increases the debt ceiling -- two key GOP demands.

War savings in debt ceiling crosshairs

"I hope my colleagues on the other side will still know a good deal when they see it. I hope they'll remember how to say yes," Reid said. "Democrats have done more than just meet Republicans in the middle. We've met them all the way."

Boehner, however, argued that Reid's plan is "full of gimmicks."

The package "doesn't deal with the biggest drivers of our deficits and debt, and that's entitlement programs," Boehner said.

Boehner's plan would require two separate votes by Congress. The first would approve approximately $1.2 trillion in spending cuts over the next decade while raising the debt ceiling through the end of 2011, two GOP leadership aides told CNN. Any failure on the part of Congress to enact the mandated spending reductions would trigger automatic across-the-board budget cuts.

The second vote would raise the debt limit through 2012, but only if Congress approves a series of major tax reforms and entitlement changes outlined by a bipartisan committee composed of Senate and House members.

The proposed structural changes -- a focal point of intense ideological conflict in Washington -- would have to generate between $1.6 trillion and $1.8 trillion in savings, according to a House Republican aide familiar with the package.

Boehner's plan, while allowing a total debt-ceiling increase of roughly $2.6 trillion, also would require both a House and Senate vote on a balanced budget amendment to the Constitution between October 1 and the end of the year.

This plan is "less than perfect," Boehner said, but "reflects bipartisan negotiations" conducted with Senate Democrats over the weekend.

Democrats are vehemently opposed to the idea of holding more than one vote to raise the debt limit through the 2012 election, arguing that such a requirement is politically unrealistic and could prove to be economically destabilizing.

Republicans want to lock in long-term tax and spending changes, and argue that Obama is trying to avoid politically tough decisions in a presidential election year.

War savings in debt ceiling crosshairs

Meanwhile, top senators from each party said Monday night that behind-the-scenes talks continue to try to reach a deal that would avoid Congress voting on either the Reid or the Boehner proposals.

As leaders from the two parties continue to bicker, analysts warn that financial markets are growing increasingly nervous about the prospect of a national default. The Dow Jones industrial average dropped more than 100 points almost immediately after opening Monday morning, although it later cut that loss.

The debate over tying Washington's borrowing limit to deficit-reduction measures continues to severely test the ability of a divided government to effectively function in an era of fierce partisanship.

The negotiations have included repeated starts and stops, with Republicans walking out several times to stress their opposition to Obama's insistence that increased tax revenue be part of a comprehensive deficit reduction deal.

Democrats and Republicans appeared to be close to a $3 trillion deal on Friday before Boehner suddenly announced he was ending his talks with the White House. Republicans accused the White House of trying to add an additional $400 billion in new revenues to the deal; administration officials insisted they were not making any make-or-break demands.

Boehner told House Republicans in a conference call Sunday that the GOP's so-called "cut, cap, and balance" plan will not be part of any final deal. The conservative blueprint, which was passed by the House last week and rejected by the Senate, would have tied a debt-ceiling increase to sweeping reductions in federal spending, caps on future expenditures and a balanced budget amendment.

Boehner insisted Monday that the conservative principles behind "cut, cap, and balance" are embodied in his new blueprint. However, two conservative Republicans in the House immediately announced their opposition to Boehner's plan, saying it fell short of what was needed to deal with the deficit problem.

If Boehner can't get the support of the so-called tea party bloc of GOP conservatives, his proposal could be defeated in the chamber his party controls.

As the debt ceiling debate drags on, a new CNN/ORC International Poll reveals a growing public exasperation and demand for compromise. Sixty-four percent of respondents to a July 18-20 survey preferred a deal with a mix of spending cuts and tax increases. Only 34% preferred a debt reduction plan based solely on spending reductions.

As in Congress, the public is sharply divided along partisan lines. Democrats and independents, according to the CNN/ORC Poll, are open to a number of different approaches because they think a failure to raise the debt ceiling would cause a crisis of major problems for the country. Republicans, however, draw the line at tax increases, and a narrow majority of them oppose raising the debt ceiling under any circumstances.

Fifty-two percent of Americans think Obama has acted responsibly in the debt ceiling talks so far, but nearly two-thirds say the Republicans in Congress have not acted responsibly. Fifty-one percent would blame the GOP if the debt ceiling is not raised; only three in 10 would blame Obama.

-- CNN's Ted Barrett, Brianna Keilar, Kate Bolduan, Keating Holland and Deirdre Walsh contributed to this report.