WASHINGTON (AP) - With scant time to spare, President Barack Obama signed legislation Tuesday to avoid an unprecedented national default that he said would have devastated the U.S. economy. But the truce with Republicans that defused the crisis seemed to be fading already.
Wall Street crumpled, dismayed by reports of new economic weakness and unimpressed by Congress' prescription. The Dow Jones industrial average sank by 266 points, its eighth straight losing session, and biggest.
The compromise deal to persuade GOP lawmakers to raise the federal debt limit - U.S. borrowing was to collide with it at midnight - will cut federal spending by $2.1 trillion or more over the next decade. But Obama immediately challenged Republicans to accept higher taxes on the wealthy in a second round of deficit cuts this fall. They adamantly refused to accept that idea during the past months' dispute.
A stern-faced Obama said at the White House that action to raise the debt limit had been essential but more - and different – steps were badly needed.
"We've got to do everything in our power to grow this economy and put America back to work," the president said, arguing forcefully for including revenue increases as well as spending cuts in the next round of efforts to trim huge government deficits.
It was the same call the GOP successfully resisted in the bill just approved, and there was little evidence of a change in position.
"The American people agreed with us on the nature of the problem. They know the government didn't accumulate $14.3 trillion in debt because it didn't tax enough," said the party's leader in the Senate, Mitch McConnell of Kentucky.
Obama placed his signature on bill in the privacy of the Oval Office less than two hours after a bipartisan 74-26 vote in the Senate. The House approved the measure Monday night on a 269-161 roll call that also reached across party lines and was sealed by a rap of the gavel by Speaker John Boehner.
The bill allows a quick $900 billion increase in borrowing authority as well as a first installment on spending cuts amounting to $917 billion over a decade.
Without legislation in place by day's end, the Treasury would have been unable to pay all the nation's bills, leading to a potential default for the first time in history. Administration officials warned of disastrous consequences for an economy that shows fresh signs of weakness on a near-daily basis as it struggles to recover from the worst recession in decades.
The White House and congressional leaders said legislation was important to reassure investors at home as well as overseas, and also to preserving the nation's AAA credit rating. Following passage of the debt deal, Moody's Investors Service, one of the three main ratings agencies, said it was retaining its triple-A rating on U.S. bonds but with a negative outlook to show there is still a risk of a downgrade.
This week's peace pact between the two parties is unlikely to be long-lived.
The bill sets up a powerful 12-member committee of lawmakers with authority to recommend fresh deficit savings from every corner of the federal budget.
Politically sensitive benefit programs such as Social Security and Medicare will be on the table as the panel of six Republicans and six Democrats works against a Thanksgiving deadline. So, too, an overhaul of the tax code. Congress will have until Christmas to vote on the recommendations without the ability to make changes.
As an incentive for Congress to act, failure to do so would trigger $1.2 trillion in automatic spending cuts, affecting the Pentagon as well as domestic programs.
Even before the president signed the legislation, he and Republicans were maneuvering for political position on the next stage.
"We can't balance the budget on the backs of people who have borne the biggest brunt of this recession," the president said, renewing his call for higher taxes on the wealthy. "Everyone is going to have to chip in. It's only fair."
Senate Republicans say it will not happen. "I'm comfortable we aren't going to raise taxes coming out of this joint committee," McConnell said in an interview with Fox on Monday.
In a speech shortly before the vote, he predicted instead a renewal of the most recent struggle over spending cuts.
The debt limit will have to be raised shortly after the 2012 election, he said, predicting that no president of either party will be "allowed to raise the debt ceiling without ... having to engage in the kind of debate we've just been through."
He conceded that Republicans got only part of what they wanted in the deal, and he pointed to next year's elections with control of the White House and Congress at stake as a chance to gain greater clout.
"Republicans only control one half of one third of the federal government, but the American people agree with us," he said.
Senate Majority Leader Harry Reid, D-Nev., said the period immediately ahead "is going to be painful," particularly if Republicans insist they will not raise any taxes.
The immediate impact is to raise the debt limit by $400 billion, giving the Treasury what it needs to avoid exceeding the current $14.3 trillion cap. An additional $500 billion increase will be available, subject to disapproval by Congress.
In exchange, spending is to be cut by $917 billion over a decade from Cabinet-level agencies and the thousands of federal programs they administer.
The bill's second phase begins with the creation of the special committee of lawmakers. Depending on its success in recommending savings that Congress ratifies by Christmas, the nation's borrowing authority will rise by $2.1 trillion or as much as $2.5 trillion.
Either way, it is estimated to be enough to avoid a rerun of the current crisis before the 2012 elections.