Money world

The Dow Jones industrial average dropped more than 400 points Wednesday after Italy’s borrowing costs soared and talks collapsed in Greece on forming a new government.

The yield on the benchmark Italian government bond spiked above 7 percent, evidence that investors are losing faith in the country’s ability to repay its debt. Greece, Portugal and Ireland required bailouts when their bond yields rose above the same mark. Unlike those countries, Italy’s $2.6 trillion in debt is too large for other European countries to rescue.

In Greece, power-sharing talks fell apart between the country’s two main political parties, raising doubt about whether the country will be able to receive the next installment of emergency loans it needs to avoid default.

Italian Premier Silvio Berlusconi promised late Tuesday to step aside after a new budget is passed, but there are concerns that the transition to a new government will be difficult. Markets see Berlusconi as an impediment to the kind of far-reaching economic reforms Italy needs to remain solvent.

“The market loves a quick solution and we’re obviously not getting one,” said Mark Lehmann, director of equities of JMP Securities. “We’ve had a strong rally off the bottom and any piece of bad news is going to be responded to negatively.”

The Dow sank 420 points, or 3.5 percent, to 11,743 as of 2:26 p.m. Eastern. If that holds, it would be the largest one-day drop for the Dow since August 4.

The Dow fell 276 on Monday of last week and then 297 points the following day after the Greek prime minister said he would put an unpopular package of austerity cuts to a public vote cash advance no faxing. That raised the prospect that the measures would fail and Greece would default. The referendum was later scrapped.

The S&P 500 lost 45 points, or 3.6 percent, to 1,230. The S&P is now negative for the year again. The index has alternated between small gains and losses for 2011 since Oct. 26.

The Nasdaq composite slid 103, or 3.7 percent, to 2,624

The slide was broad. Only two stocks in the S&P 500 index rose. Materials and financial companies fell the most. Morgan Stanley fell 8 percent and coal producer Alpha Natural Resources fell 8 percent.

Markets fear that a chaotic default by either Greece or Italy would lead to huge losses for European banks. That, in turn, could cause a global lending freeze that might escalate into another credit crisis similar to the one in 2008 after Lehman Brothers fell.

Some analysts fear that the euro itself could fall, which would lead to inflation and a breakdown in free trade agreements in the European Union.

European markets also fell sharply. Italy’s benchmark index plunged 3.8 percent. Germany’s DAX and France’s CAC-40 each lost 2.2 percent.

The prices of assets seen as safe havens rose sharply. The dollar jumped 1.6 percent versus the euro. The yield on the benchmark 10-year Treasury note fell to 1.97 percent from 2.08 percent late Tuesday, a steep drop.

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Japanese media are reporting Olympus Corp. has fired its vice president as a scandal over its past acquisitions and advisor fees shakes the company.

Japan’s Kyodo news service and public broadcaster NHK on Tuesday both reported the dismissal of the executive, Hisashi Mori.

Company officials were not immediately available for comment. Olympus president Shuichi Takayama was to hold a news conference Tuesday.

Olympus has been mired in a scandal over allegations that a $687 million payment for financial advice was excessive. Its chairman and president abruptly resigned last month in an effort to placate angry shareholders.

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An agreement to contain the European debt crisis electrified the stock market Thursday, driving the Dow Jones Industrial average up nearly 340 points and putting the Standard & Poor’s 500 index on track for its best month since 1974.

Investors were relieved after European leaders crafted a deal to slash Greece’s debt load and prevent the crisis there from engulfing larger countries like Italy. The package is aimed at preventing another financial disaster like the one that happened in September 2008 after the collapse of Lehman Brothers.

But some analysts cautioned that Europe’s problems remained unsolved.

“The market keeps on thinking that it’s put Europe’s problems to bed, but it’s like putting a three-year old to bed: You might put it there but it won’t stay there,” said David Kelly, chief market strategist at J.P. Morgan Funds.

Kelly said Europe’s debt problems will remain an issue until the economies of struggling nations like Greece and Portugal grow again.

Commodities and Treasury yields soared as investors took on more risk. The euro rose sharply against the dollar.

Stronger U.S. economic growth and corporate earnings also contributed to the surge. The government reported that the American economy grew at a 2.5 percent annual rate from July through September on stronger consumer spending and business investment. That was nearly double the 1.3 percent growth in the previous quarter.

Banks agreed to take 50 percent losses on the Greek bonds they hold. Europe will also strengthen a financial rescue fund to protect the region’s banks and other struggling European countries such as Italy and Portugal.

“This seems to set aside the worries that there would be a massive contagion over there that would have brought everything down with it,” said Mark Lamkin, head of Lamkin Wealth Management.

The Dow Jones industrial average soared 339.51 points, or 2.9 percent, to 12,208.55. That was its largest jump since Aug. 11, when it rose 423.

All 30 stocks in the Dow rose, led by Bank of America Corp. with a 9.6 percent gain. It was the first time the Dow closed above 12,000 since Aug. 1.

Even with Thursday’s gains, the Dow remains 4.7 percent below the high for the year it reached April 29. The Dow has fallen every month since then due to a combination of a slowdown in the U.S. economy, a worldwide parts shortage after the earthquake and tsunami in Japan, and concerns about the European debt crisis. The Dow is now at approximately the same level it traded at on July 28.

Stocks fell for much of August in the wake of a last-minute deal to prevent the U.S. government from defaulting on its debt.

But anticipations of a solution to Europe’s debt problems and signs that the U.S. economy is not in another recession have lifted stocks higher throughout October.

The Dow is up 11.9 percent for the month so far. With only two full days of trading left in the month, the Dow could have its biggest monthly gain since January 1987.

The S&P 500 rose 42.59, or 3.7 percent, to 1,284.59. Those gains turned the S&P positive for the year for the first time since Aug. 3, just before the U payday loans.S. government’s debt was downgraded. The index is up 13.5 percent for the month, its best performance since a 16.3 percent gain in October 1974.

The Nasdaq composite leaped up 87.96, or 3.3 percent, to 2,738.63.

Small-company stocks rose more than the broader market. That’s a sign investors were more comfortable holding assets perceived as being risky but also more likely to appreciate in a strong economy. The Russell 2000 index jumped 5.3 percent.

Raw materials producers, banks and stocks in other industries that depend on a strong economy for profit growth led the way. Copper jumped 5.8 percent to $3.69 a pound and crude oil jumped 4.2 percent to $93.96 a barrel.

The euro rose sharply, to $1.42, as confidence in Europe’s financial system grew. The euro was worth $1.39 late Wednesday and had been as low as $1.32 on Oct. 3. European stock indexes also soared. France’s CAC-40 rose 6.3 percent and Germany’s DAX jumped 6.1 percent.

Investors sold U.S. Treasury notes and bonds, an indication they were moving away from safer investments. The yield on the 10-year Treasury note, which moves in the opposite direction of its price, rose to 2.39 percent from 2.21 percent late Wednesday.

European leaders still have to finalize the details of their latest plan. French President Nicolas Sarkozy spoke with Chinese President Hu Jintao amid hopes that countries with lots of cash like China can contribute to the European rescue.

Past attempts to contain Europe’s two-year debt crisis have proved insufficient. Greece has been surviving on rescue loans since May 2010. In July, creditors agreed to take some losses on their Greek bonds, but that wasn’t enough to fix the problem.

Worries about Europe’s debt crisis and a weak U.S. economy dragged the S&P 500 down 19.4 percent between April 29 and Oct. 3. That put it on the cusp of what’s called a bear market, which is a 20 percent decline.

Since then, there have been a number of more encouraging signs on the U.S. economy. Despite the jitters over Europe, many large American companies have been reporting strong profit growth in the third quarter.

Dow Chemical rose 8.2 percent after its profit last quarter rose 59 percent on strong sales growth from Latin America. Occidental Petroleum Corp. jumped 9.7 percent after reporting a 50 percent surge in income.

Citrix Systems Inc. rose 17.3 percent. The technology company’s revenue rose 20 percent last quarter, and it forecast growth of up to 13 percent for 2012. Akamai Technologies Inc., whose products help speed the delivery of online content, jumped 15.4 percent after the company reported earnings that beat analysts’ expectations.

Avon Products Inc. fell 18 percent, the most in the S&P 500, after the company said the Securities and Exchange Commission is investigating its contacts with financial analysts and Avon’s own probe into bribery in China and other countries.

Nine stocks rose for every one that fell on the New York Stock Exchange. Volume was heavy at 6.5 billion shares.

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Brazilian President Dilma Rousseff wasted little time firing her top aide in May when the country’s biggest newspaper reported that he had received $4 million in unexplained income.

Rousseff didn’t stop with her chief of staff. In quick succession, she let go of three other ministers publicly accused of everything from receiving kickbacks to charging the government for staying at a love motel. Meanwhile, public outrage had turned into regular street protests.

Those unprecedented actions in the halls of power match what Brazilians say is a new mood spreading across South America’s biggest country: People are making it clear in the streets and elsewhere that long-tolerated sins such as bribery, graft and other acts of corruption are no longer tolerable.

Brazilians have long accepted such malfeasance as the necessary cost of doing business, be it in commerce or public service. Every year, the country loses up to $47.4 billion to undeclared tax revenue, vanished public money and other casualties of widespread corruption, according to an August survey by the Federation of Industries of Sao Paulo.

For most of Brazil’s history, people have felt powerless to change things. Two decades of military dictatorship starting in 1964 and years of hyperinflation left citizens feeling disconnected from their representatives and from the spending of their tax money.

Now a new middle class is rising on the strength of the country’s commodities-driven economy. They’re starting to pay taxes and want to know where that money’s going, said economist Marcos Fernandes, with the Brazilian think tank the Getulio Vargas Foundation.

Many Brazilians also sense that their continent-sized country is ready to realize its potential as a world economic power, and that the old way of doing business, based on personal connections and under-the-table agreements, is holding the country back, Fernandes said. Brazil’s economy grew by 7.5 percent last year.

“This new lower-middle class, middle-middle class is going to step up pressure for better public services,” he said. “Internationally we’ve seen that the growth of these classes changes politics. They’re not moved by ideology so much. They want transportation, education. They want public services.”

Public anger has also been fueled by regular reports from the Federal Comptroller General, an accounting body that monitors the use of taxpayer money.

On top of that, Brazilian news media is intensely covering the issue, and people are accessing information like never before, Fernandes said.

That’s resulted in growing numbers of people taking to the streets to voice their new expectations. Half a dozen cities saw anti-corruption marches on a single September day, and marches hit 18 cities Wednesday.

“I’ve been indignant about corruption for a long time, but now it’s intolerable,” said environmental engineer Mateus Mendonca, 28, during a September protest in downtown Rio de Janeiro. “The lack of respect politicians have for the people is explicit.”

Such mass actions to demand government accountability have never happened on the current scale, said Gil Castello Branco, founder of the nonprofit watchdog group Contas Abertas, which advocates for transparency in government.

“We’re beginning to understand that we are the state, that elected officials are there to represent us,” Castello Branco said. “We are the bosses, and they are the ones who owe us explanations. Brazilians haven’t been aware of that until now.”

The problem has long run deep, touching ministers and small town mayors alike.

Ordinary Brazilians encounter it in the police officer who stops a driver for a ticket but agrees to let the offense go in exchange for beer money. In business, corruption appears in the owner of a private construction firm that pays off an official on the side to secure a lucrative job and evade the public bidding process.

Brazilians often circumvent rules and use bribes and connections to get by and run businesses within a hugely inefficient bureaucracy.

According to the World Bank, Brazil ranks 127th out of 183 economies in ease of doing business. Starting a business, for example, takes an average of 120 days and requires 15 different procedures.

The good government group Transparency International found that Brazil ranked 69th out of 178 countries last year in perceived corruption, putting it ahead of most of its Latin American peers but behind developed countries.

But the eschewing of rules for personal gain can have the most serious consequences.

A blast ripped through downtown Rio on Thursday, killing three people and injuring more than a dozen.

Investigators say the explosion was likely caused by a leak in a restaurant’s illegal gas hookup. The establishment didn’t have a fire department safety permit allowing it to use cooking gas, according to the city’s fire chief. And the gas company serving Rio hadn’t provided service to that address since 1961. Yet rescue workers extracted from the charred building six industrial-sized gas cylinders, each with a 99-pound (45-kilogram) capacity. Every government since the restoration of democracy in 1985 has been hit by corruption scandals, including one that prompted President Fernando Collor de Mello’s resignation in 1992.

Rousseff’s predecessor, Luiz Inacio Lula da Silva, rose to power from the factory floor and took office amid great hope that his tenure would break the cycle of sleaze. Yet in 2005, his government was rocked by one of the biggest corruption schemes the country had seen: a vast network of monthly payouts through which Silva’s Workers Party bought legislative support. He denied knowledge of wrongdoing, but his party was scarred.

This year, Rousseff, who had been Silva’s chief of staff, brought to the presidency other veterans of Silva’s administration, including his finance minister, Antonio Palocci.

Palocci had resigned in disgrace in 2006 after he was seen frequenting a house where politicians received bribes and held all-night sex parties. As president, Rousseff named him her chief of staff.

Despite that pick, Brazilians took note when Rousseff ousted Palocci and dozens of others accused of misconduct. Her approval rating soared to 71 percent in September, thanks largely to the perception that she was taking on entrenched corruption, according to the Ibope polling institute.

Rousseff’s approach prompted an erosion in legislative support among allied parties, but Castello Branco said the push for clean government was under way.

“She awakened a sense among Brazilians that maybe the cleaning could happen not just in one room, but in the whole house,” he said.

A wide range of groups joined in the movement, from the Federation of Industry of the State of Rio de Janeiro to the National Conference of Brazilian Bishops. A group of lawmakers dedicated to the cause in Congress dusted off 21 bills that target corruption, some having been stuck in the process for more than 15 years.

“It’s our job to take the ball from these popular movements and kick it into the goal,” said Rep. Francisco Praciano of Amazonas state, coordinator of the 50-member anti-corruption caucus. “For this to work, it needs to have several fronts.”

Castello Branco said such actions should only be a start in changing Brazil for good: Society must remain engaged for the anti-corruption movement to produce real results.

“There is no police, no federal accounting investigation, that will fight corruption with the intensity that it deserves if the public is not behind them,” he said. “We have to start thinking of the next steps. This can’t be just words.”

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Missouri plans to broaden its business reach overseas by opening three new foreign trade offices, economic development director David Kerr said Tuesday.

The state recently won a federal grant that will fund three new offices for a year, Kerr said. They’ll be placed in Brazil, India and China and Kerr said. The state has already solicited contractors to staff and run the offices, is due to receive applications today and hopes to have them up and running within a month, said Kerr.

Missouri currently has six foreign trade offices, which help small and mid-sized businesses find export clients and develop trade relationships in overseas markets. Four are in Asia, one in western Europe and one in Mexico.

Like President Barack Obama, Mo. Gov Jay Nixon has made boosting exports a cornerstone of his economic development policy. Last year, the value of all goods exported from Missouri grew 35 percent to $12.9 billion. So far this year, exports are running 14 percent ahead of last year’s pace.

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The home-buying season was a bust.

March through August are typically the peak buying months. But this time, Americans bought fewer new homes in that stretch than in any other six-month period since record-keeping began a half-century ago.

And sales of previously occupied homes didn’t fare much better. They nearly matched 2009’s total for the peak buying months. And that was the worst since 1997.

Combined, total sales this spring and summer were the weakest on records dating to 1963. The figures underscore how badly the housing market is faring and suggest that a recovery is years away.

Because the economy is barely growing and unemployment exceeds 9 percent, many people see a home purchase as too big a risk. Some worry about losing their jobs. Others can’t afford the 20 percent down payment that most lenders now require.

Not even shrunken home prices and the lowest mortgage rates in six decades are convincing would-be buyers.

“The job engine has really sputtered out, and without jobs, Americans really can’t purchase homes,” said Celia Chen, a housing economist at Moody’s Analytics.

Plunging stock prices and renewed recession fears have led many economists to push back expectations for a housing recovery.

Chen expects prices to bottom at the start of 2012. And she doesn’t expect sales and prices to make a healthy recovery until 2015 at the earliest. In hard-hit areas such as California and Florida, it could take decades for prices to return to normal, she said.

Pierre Ellis, an analyst at Decision Economics, said that until wages increase and hiring picks up, sales will languish.

The “bad news is the evident absence of optimism that sales will pick up to any degree,” Ellis said.

Roughly 168,000 new homes were sold from March through August, the Commerce Department said Monday. That’s fewer than the 180,000 for the same period last year _ and last year’s sales were boosted by a temporary buyer’s tax credit fast cash advance loan. Over the same period in 2009, roughly 208,000 new homes were sold.

In a healthy six-month buying season, about 400,000 new homes would sell.

Among re-sales, about 2.8 million homes sold from March through August this year. That’s roughly as many as in the same periods in 2009 and 2010. In a healthy market, about 3.3 million would be sold in that six-month stretch.

Michael McGrew, who runs McGrew Real Estate in Lawrence, Kan., said many families won’t buy until the economy strengthens. Even in Lawrence, which had a low unemployment rate of 6.4 percent in July and is home to the University of Kansas, people are worried, McGrew said.

What would help most would be a relocated company that’s ready to hire in the Lawrence area, McGrew says. But hopes for the housing market to turn around soon are dim, he said.

“We’re actually seeing more people trading down their home or trading out of our market entirely,” McGrew said.

Nationally, prices are still falling. Prices for previously occupied homes have sunk more than 5 percent over the past year to a median of $168,300. New-home prices have fallen even further, by 7.7 percent, to $209,100.

That suggests builders and Realtors are slashing prices to compete with low-priced foreclosures and short sales. Short sales occur when lenders allow homes to be sold for less than what’s owed on the mortgage.

Combined, foreclosures and short sales are selling at an average 20 percent discount. And they’re lowering neighboring home values.

Devan MacConnell, 28, an administrator at a nonprofit in southeast Virginia, had been renting for years before buying a short sale this month _ a one-bedroom condo in Virginia Beach overlooking the ocean. She picked it up for $215,000, about $35,000 less than neighboring apartments.

“It was a steal,” she said.

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South Korea’s inflation rate accelerated for a second straight month in July as rising prices defy a series of central bank interest rate increases.

The country’s consumer price index rose 4.7 percent last month from the year-before period amid higher costs for food and transportation, the government’s Statistics Korea announced Monday. That followed an increase of 4.4 percent in June.

The result for July matched the 4.7 percent reached in March, which was the highest since 4.8 percent recorded in October of 2008.

South Korea, Asia’s fourth-largest economy, is not the only country in the region battling rising prices.

Surging inflation is among the factors threatening East Asia’s economic outlook, the Manila-based Asian Development Bank said in a report last week, emphasizing that levels in many economies have risen above 10-year averages.

Inflation in China, Asia’s largest economy, rose to a three-year high of 6.4 percent in June.

The Bank of Korea has raised its key interest rate five times in the past year to 3.25 percent in a bid to stem price pressures, though it kept the borrowing cost unchanged in July.

South Korea’s inflation rate has now been above 4 percent for seven straight months, a level the central bank sees as intolerable. The bank’s next meeting to set the benchmark interest rate is scheduled for Aug. 11.

In June, the International Monetary Fund expressed concern about South Korean inflation and urged “further steady monetary tightening.”

So-called core inflation, which strips out volatile agriculture and oil prices, also accelerated in July, increasing 3.8 percent from the year before, Statistics Korea said. It had risen 3.7 percent in June.

Compared with the previous month, the overall consumer price index rose 0.7 percent in July.

South Korea’s latest inflation figures came after the central bank announced last week that the country’s economic growth slowed in the second quarter to an expansion of 0.8 percent amid weaker exports, manufacturing and services.

The central bank last month raised its inflation forecast for this year to 4 percent from the previous figure of 3.9 percent. It also cut its forecast for economic growth to 4.3 percent from 4.5 percent.

The bank’s inflation target is 3 percent, but it has set a “tolerance range” of plus or minus one percentage point from that level. The consumer price index has exceeded the upper end of that range _ 4 percent _ every month this year through July.

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Stung by revelations that his plan would cut spending less than advertised, House Speaker John Boehner on Tuesday postponed a vote on a debt-ceiling measure that was already running into opposition from tea party conservatives. The move came just a week before an Aug. 2 deadline for staving off the potential financial chaos of the nation’s first-ever default.

With time running short, the speaker promised to quickly rewrite his debt-ceiling legislation after budget officials said it would cut spending by less than $1 trillion over the coming decade instead of the promised $1.2 trillion. The vote originally scheduled for Wednesday is now set for Thursday. That may give Boehner more time to hunt for votes, but it gives Congress and the White House even less time for maneuvering.

Meanwhile, public head-butting between Democratic President Barack Obama and the Republicans showed no sign of easing. The White House declared Obama would veto the Boehner bill, even if it somehow got through the House and the Democratic-controlled Senate.

For all that, it was the tea party-backed members of Boehner’s own party who continued to vex him and heavily influence the debt and deficit negotiating terms _ not to mention his chances of holding on to the speakership.

Their adamant opposition to any tax increases forced Boehner to back away from a “grand bargain” with Obama that might have made dramatic cuts in government spending. Yet when Boehner turned this week to a more modest cost-cutting plan, with no tax increases, many conservatives balked again. They said the proposal lacked the more potent tools they seek, such as a constitutional mandate for balanced budgets.

Rep. Jim Jordan of Ohio, chairman of a large group of conservative Republicans, sent a tremor through the Capitol Tuesday when he said he doubted Boehner had enough support to pass his plan. The Boehner bill would provide an immediate debt ceiling increase but would require further action before the 2012 elections.

Obama strongly opposes that last requirement, arguing that it would reopen the delicate and crucial debt discussions to unending political pressure during next year’s campaigns.

The president supports a separate bill, pushed by Majority Leader Harry Reid in the Democratic-controlled Senate, that would raise the debt ceiling enough to tide the government over through next year _ and the elections.

Boehner wasn’t helped when presidential candidate Tim Pawlenty and the groups Tea Party Patriots and Tea Party Express criticized his plan. A worse blow came when a congressional analysis said his plan would produce smaller savings than originally promised. Of particular embarrassment was a Congressional Budget office finding that Boehner’s measure would cut the deficit by just $1 billion next year.

Boehner’s office said it would rewrite the legislation to make sure the spending cuts exceed the amount the debt limit would be raised. Adding a political touch, it accused the Democrats of declining to put forward specifics subject to the same sort of review.

Earlier, responding to the conservative Republican opposition, Boehner quickly went on Rush Limbaugh’s radio show, then he began one-on-one chats with wavering Republicans on the House floor during midday roll call votes.

“He has to convince a few people,” Rep. Tom Petri, R-Wis., observed dryly from a doorway.

A serious, almost dire urgency ran through Boehner’s efforts. The clock was ticking down to next Tuesday’s deadline to continue the government’s borrowing powers and avert possible defaults on U.S. loans.

Congressional veterans say a final-hour bargain can’t be reached until both parties irrefutably prove to themselves and the public that neither the Democrats’ top goals nor the Republicans’ can be reached in the divided Congress.

Moreover, Boehner’s grasp on the speakership could be weakened if he fails to pass the debt-ceiling plan that bears his name. Assuming no more than five Democrats support the measure _ the same number that backed a GOP balanced-budget bill last week _ Boehner can afford to lose no more than 28 of the House’s 240 Republicans.

His allies predicted he’ll make it, and Boehner got a vocal endorsement from his sometimes rival, Majority Leader Eric Cantor, R-Va. But holdouts were not limited to the much-discussed freshman class, elected in the tea party-fueled 2010 elections.

“He can’t get my vote because I felt like that, for long-term solutions to this problem, all these promises we make in cutting spending never seem to occur,” said Rep. Phil Gingrey, R-Ga. ” I’ve been here nine years and I’ve never seen it happen yet.”

Six-term Rep. Jeff Flake of Arizona, a long-time critic of deficit spending, said he also was leaning against Boehner’s bill even though he knows a tougher measure cannot be enacted. “Obviously you have to weigh that against passing something that just doesn’t solve the problem,” Flake said.

Major business groups weighed in. The U.S. Chamber of Commerce urged support of Boehner’s bill, while the conservative Club for Growth denounced it as too weak.

While Boehner searched for votes, some Americans seemed to edge closer to notion that the Aug. 2 deadline might pass without a solution. The stock market fell again, although not dramatically. California planned to borrow about $5 billion from private investors as a hedge against a possible federal government default.

The White House spoke with veterans groups about what might happen to vets’ benefits if a deal isn’t reached. Obama has said he can’t guarantee Social Security checks and payments to veterans and the disabled would go out on schedule.

The Senate worked on other issues, waiting to see if Boehner’s bill would pass the House and come its way. Reid, D-Nev., said the Boehner bill could not pass his chamber.

Reid has his own plan. Like Boehner’s, it would identify about $1.2 trillion in spending cuts to the day-to-day operating budgets of government agencies. Reid’s proposal, however, would require only one congressional vote to raise the debt ceiling before the 2012 elections. And it counts an extra $1 trillion in savings from winding down the wars in Iraq and Afghanistan.

Both proposals would create a bipartisan congressional commission to identify further deficit reductions, especially in major health care programs such as Medicare and Medicaid.

For seven months, tea party-backed House members _ freshmen and veterans alike _have rewritten congressional traditions. Speakers typically can twist arms, offer favors and issue veiled threats to round up the needed support on tough votes. It’s possible Boehner will be able to do so on the debt-ceiling matter.

But many tea party activists abhor political compromise. They insist that their elected officials stand on principle, regardless of the consequences.

“A lot of the tea party guys owe certain support groups,” said Rep. Walter Jones Jr., R-N.C. He said he had not decided how to vote on Boehner’s bill.

Freshman Rep. Trey Gowdy, R-S.C., bristles at the notion that tea party-influenced newcomers are sheep-like ideologues willing to risk default. “We’re not a bunch of knuckle-dragging, mouth-breathing Neanderthals,” Gowdy said. “We’re interested in answering what we perceive to be the mandate, which is to stop the spending and change the way Washington handles money.”

Gowdy said he was leaning against Boehner’s proposal.

But freshman Rep. Allen West, R-Fla., a tea party favorite, felt otherwise.

“This Boehner plan, does it have everything that I want in it?” West said. “Absolutely not. It is the 70-75 percent plan that we can go forward with.”

Petri, a 33-year House veteran, said Boehner may need the votes of 35 to 40 Democrats, which Democratic leaders say is impossible.

Asked how Boehner will get out of his predicament, Petri paused and said: “When I think of it, I’ll give him a call.”

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In a little more than two weeks, the federal government will max out its credit card.

The U.S. Treasury is fast approaching the $14.3 trillion dollar limit on how much it can borrow. That limit is set by Congress. But this year the Republican-led House of Representatives refuses to raise it, at least not without spending cuts more massive than the White House wants to make.

If nothing changes, come Aug. 2, something unprecedented will happen: The government of the United States will run out of money. It will have to either cut spending nearly in half

UNION