<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[<p>The chairman of the US Federal Reserve warned on Tuesday that failure to lift the government's borrowing limit could risk a potentially disastrous loss of confidence, giving further impetus to the latest round of deficit-reduction talks by top lawmakers.<br><br>Ben Bernanke said the United States could lose its coveted AAA credit rating and the dollar's special status as a reserve currency could be damaged if there was not a quick resolution to the battle over raising the $14.3 trillion debt limit.<br><br>He spoke as Vice President Joe Biden and a bipartisan group of six top lawmakers began the first of three straight days of negotiations to try to breach a stark divide between Republicans and Democrats over taxes and healthcare.<br><br>The group is trying to find trillions of dollars in budget savings and in meetings on Tuesday, Wednesday and Thursday they are expected to take a close look at annual spending levels, budget process reforms and healthcare benefits.<br><br>After six negotiation sessions with little progress, the Biden group is stepping up efforts to find a deal that would give Congress the political cover to raise the debt ceiling by an Aug. 2 deadline, when the United States could start defaulting on its obligations.<br><br>"We're making real progress, we're down to the tough stuff now and everybody's still in the room," Biden said after Tuesday's meeting. He did not give details about the talks.<br><br>Democratic Senator Max Baucus said both sides wanted an agreement on raising the borrowing limit. Republican Senator Jon Kyl said they wanted to reach a big enough deal so they would not have to raise it again before the 2012 elections.<br><br>Top U.S. officials and financial analysts have warned that a default could cause chaos on global financial markets.<br><br>"We could actually have a reprise of a financial crisis, if we play this too close to the line. So we're going be working hard over the next month," President Barack Obama said on Tuesday in an interview with NBC's "Today" show.<br><br>Bernanke, who as head of the central bank is independent of the Obama administration, agreed.<br><br>"Even a short suspension of payments on principal or interest on the Treasury's debt obligations could cause severe disruptions in financial markets and the payments system," he said in remarks at an event sponsored by the Committee for a Responsible Federal Budget think tank.<br><br>Many on Wall Street fear that even the briefest default by the United States could sink the dollar and spike interest rates sharply higher, tipping a fragile economic recovery back into recession.<br><br><strong>Independence Day Deal?</strong><br>The Biden talks, which began on May 5, have been moving slowly, with both sides refusing to budge on key issues. Republicans will not consider tax hikes while Democrats oppose proposals to privatize the government-run Medicare healthcare program for the elderly.<br><br>Democrats could consider changes to Medicare but Republicans must show flexibility on taxes, a Democratic congressional aide said. Democratic leaders nevertheless challenged Republicans to take the proposed Medicare cuts off the negotiating table.<br><br>Talks on Tuesday focused heavily on annual spending. Both Obama and Republicans have proposed freezing such "discretionary" spending, which funds everything from law enforcement to national parks, for five years. But the two sides need to agree where to set those levels.<br><br>"Obviously the baseline is an important part of it," said Democratic Representative Chris Van Hollen.<br><br>Obama and House of Representatives Speaker John Boehner, the top Republican in Congress, want the group to complete its work by July 4, and markets have made it clear they want to see substantial progress by mid-July.<br><br>Deficits are hovering at their highest levels relative to the economy since World War Two. For this fiscal year, the U.S. deficit is expected to reach $1.4 trillion.<br><br>Congress faces the challenge of trying to cut the budget but also boost the sputtering economy in the short term.<br><br>The White House is weighing a payroll tax cut for businesses and Republicans are touting a job-creation agenda of that consists of tax cuts and scaled-back regulation.<br><br>Republicans have said that any debt-limit increase must include spending cuts of at least equal size, which would point to a package of at least $2 trillion to cover the country's borrowing needs through the November 2012 elections.<br><br>(Reuters)</p>