News24

Obama refuses to negotiate debt ceiling

2013-01-15 09:01

Washington - President Barack Obama on Monday rejected any negotiations with Republicans over raising the US borrowing limit, accusing his opponents of trying to extract a ransom for not ruining the economy in the latest fiscal fight.

At a White House news conference called to promote his position on the budget, Obama vowed not to trade cuts in government spending sought by Republicans in exchange for raising the borrowing limit.

"What I will not do is to have that negotiation with a gun at the head of the American people," he said.

With an agreement to prevent the economy falling over a "fiscal cliff" barely two weeks old, Washington has already begun skirmishing over a new fiscal issue: The debt ceiling, which fixes a limit on how much the government can borrow.

The United States could default on its debt if Congress does not increase the borrowing limit, a prospect Federal Reserve Chairman Ben Bernanke warned against in separate comments on Monday.

Obama has tangled repeatedly with Congress over budget and spending issues, and on Monday he said Republicans would bear the responsibility for the consequences of a default.

Reining in the deficit

"They can act responsibly, and pay America's bills or they can act irresponsibly, and put America through another economic crisis," he said. "But they will not collect a ransom in exchange for not crashing the American economy."

Republicans want Obama to cut some spending to rein in the deficit before they agree to raise the debt limit again.

Obama must get "serious about spending and the debt limit is the perfect time for it", Senate Republican leader Mitch McConnell said. "The American people do not support raising the debt ceiling without reducing government spending at the same time," said Republican John Boehner, the House of Representatives speaker.

The last debt ceiling fight, in 2011, upset world financial markets. Obama cast the borrowing issue as one that will affect many Americans and sensitive industries.

"If congressional Republicans refuse to pay America's bills on time, Social Security checks and veterans' benefits will be delayed. We might not be able to pay our troops, or honour our contracts with small business owners. Food inspectors, air traffic controllers, specialists who track down loose nuclear material wouldn't get their paychecks," he said.

Obama reminded Republicans that he won the November election partly on his approach to fiscal issues.

Pre-emptive strike

The debt limit is one of a trio of deadlines looming around the end of February, including automatic deep spending cuts that were temporarily put off in the "fiscal cliff" deal, and the end of a stopgap government funding measure.

A number of Republicans have said they would be willing to allow a US debt default or a government shutdown to force the Obama administration to accept deeper spending cuts than the White House would like.

Obama's unexpected news conference could have been a pre-emptive strike aimed at influencing strategy sessions among Republican lawmakers scheduled for later this week.

The Treasury Department warned on Monday that the United States will run out of ways to prevent a default in mid-February or early March if the $16.4 trillion ceiling on borrowing is not raised.

Obama said he would agree to talk about steps to trim the US budget deficit, but made clear he wants to keep that discussion separate from the debt ceiling increase.

"The issue here is whether or not America pays its bills," he said. "We are not a deadbeat nation. And so there's a very simple solution to this: Congress authorises us to pay our bills."

Domestic agenda overshadowed

He held to his position that deficit reduction should include measures to raise revenue and not come from spending cuts alone.

Republicans have rejected that approach, saying the "fiscal cliff" deal, which raised taxes for the wealthy while maintaining low tax rates for most Americans, should have put to rest any more discussion over tax increases.

Fiscal issues loomed large during what was the final news conference of Obama's first term, which came a week before an inauguration ceremony that will launch his next four years.

Fights with Congress over taxes and spending have overshadowed much of his domestic agenda during most of the last two years, with the president facing legislative gridlock that shows little sign of abating.

Obama raised the spectre of a severe setback to the US economy if congressional Republicans persist with the threat of a debt default.

"It would be a self-inflicted wound on the economy," he said. "Even entertaining the idea of this happening, of the United States of America not paying its bills, is irresponsible. It's absurd."

Treasury Secretary Timothy Geithner, top White House economic adviser Gene Sperling and Obama senior adviser Valerie Jarrett later held a conference call with three dozen business leaders to discuss the president's fiscal plans and insist that Congress must raise the debt limit "without drama or delay", a White House official said.

Participants included Honeywell International CEO David Cote, Evercore Partners chairperson Roger Altman, Goldman Sachs Group chief executive Lloyd Blankfein, Marriott International chief executive Arne Sorenson, AT&T CEO Randall Stephenson, Xerox chief Executive Ursula Burns, IBM CEO Ginni Rometty and Deloitte LLP's US chief executive, Joe Echevarria.

Comments
  • mofstok - 2013-01-15 09:31

    How does borrowing your way in to more debt to pay your bills (which you already can't pay) make any sense Obummer? Are you THAT thick?

      Jo - 2013-01-15 09:52

      It's either a controlled recession now or a total collapse when the world finally realises that the US dollar is a worthless I.O.U. Obama is just delaying the problem, like most politicians do.

  • denny.cray - 2013-01-15 09:48

    Neither of the parties have the guts to get the debt under control. The debt ceiling has been raised 74 times since 1962. The Republicans will roll over with minor concessions. The US will extend and pretend until eventually the market loses faith completely.

  • Rational100 - 2013-01-15 11:42

    A debt ceiling is just an imaginary line in economics...you can draw it anywhere you want but the bottomline is; Are u able to service your debt to the satisfaction of your financier? ...Put differently -Is the Lender confident that you have the capacity to repay the loan? Lately, we are seeing a trend where a Lender could even lend you more if he/she figures out that you are to big to default !!

      mofstok - 2013-01-15 12:12

      What is "too big to default"? Enron thought they were too big to fail, as did Lehman Bros. etc. Too Big To Fail does not exist, not even America.

      allcoveredinNinjas - 2013-01-15 12:26

      Too big too fail is not the ability of the company to fail but that the failure of that company will result in consequences that are untolerable for the country/goverment to tolerate and will intervene. If AIG had fallen after Lehman bro's then most of americans would have lost their homes so it got bailed out.

      Rational100 - 2013-01-15 12:52

      @mofstok- we are talking sovereign debt here.... What will the Fed Reserve bank do if the US govt does not pay??....take then to a US court?.. And then?...that cannot stop the $ flowing around as currency. Ultimately, the Fed Reserve Bank would have to plead with the Govt to honour it promise to pay at some future date....and life will go on. No one said $ 16.4 trillion is the absolute ceiling for sovereign debt ..but the US congress came up with a figure from thin air....

      Rational100 - 2013-01-15 13:15

      @allcoveredinNinja- it is in the interest of both the Fed and US Treasury to protect US credit rating - otherwise continued debasement of $ will spell doom and gloom for the US and world economy at large...

  • fidel.uncensored - 2013-01-15 13:04

    Stop living beyond your means, and expect the world to carry your water for you.

  • marc.hugo.75 - 2013-01-15 13:25

    United States federal debt is now give or take 500BN, bang on double the entire GNP of the country - not it's annual exchequer, but its GNP. That's a valuation of all the goods and services produced in the economy before fed or state taxation for a whole year x 2. This is a horrendous debt that would theoretically take decades to make up if any effort to do so was made at all. It has come about as a result of US fiscal policy, in place for many years to apply 'deficit spending' instead of inflating the money supply. Aside of the pros and cons of either, neither would be necessary if they had balanced their budget. It goes without saying that countless successive administrations have not done so, resulting in massive national debt to private, corporate and sovereign lenders.

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