Bloomberg News

Obama Warns of Deep Recession in Urging Debt-Limit Raise

October 08, 2013

U.S. President Barack Obama

U.S. President Barack Obama spoke as lawmakers in Congress began taking the first tentative steps toward resolving the standoff. Photographer: Andrew Harrer/Bloomberg

President Barack Obama said the U.S. economy risks a “very deep recession” if Congress doesn’t raise the $16.7 trillion debt ceiling.

Speaking at a news conference at the White House, Obama said he’s willing to talk to Republicans about anything, including changes to his health-care law, once lawmakers end the partial government shutdown and increase the country’s borrowing authority.

“No American president would deal with a foreign leader like this,” he said. “Most of you would not deal with either coworkers or business associates in this fashion. We shouldn’t be dealing this way here in Washington.”

Obama spoke as lawmakers in Congress began taking the first tentative steps toward resolving the standoff. Both sides are exploring actions that will be needed to end the week-old shutdown and raise the debt limit before U.S. borrowing authority lapses on Oct. 17.

Obama didn’t answer directly when asked whether he planned to make sure bondholders get paid first. He said there would be consequences for the economy and the creditworthiness of the U.S. if the government missed other payments such as those to Social Security beneficiaries.

If an individual doesn’t make required payments, the president said, “You’re just a deadbeat and you can anticipate that will hurt your credit.”

Senators Debate

Obama also expressed openness to short-term measures for funding the government or raising the debt ceiling as long as policy conditions aren’t attached.

Senate Majority Leader Harry Reid called all 100 senators to the floor for a debate this afternoon.

Senate Democrats will introduce a bill today that would raise the debt ceiling for a year, said Senator Charles Schumer, a New York Democrat. They are planning a test vote before the end of this week.

To succeed, they’ll need support from at least six Republicans on procedural votes. They’ve gotten backing from one Republican, while several others haven’t ruled out the possibility.

Risk appetites in U.S. capital markets diminished amid the budget impasse, pushing Treasury one-month bill rates to the highest since 2008 and Internet stocks to the biggest losses in two years.

Stocks Fall

Rates on one-month bills reached 0.34 percent, the highest since October 2008, while the Standard & Poor’s 500 Index slipped 1 percent to 1,659.18 at 2:48 p.m. in New York. The Nasdaq Internet Index tumbled 4 percent, the most since November 2011, and the Chicago Board Options Exchange Volatility Index touched the highest level of the year.

House Republicans, who had previously discussed pairing a debt-limit increase with a list of party priorities, haven’t released legislation or set a time line for action. Instead, they’re planning a vote to appoint a working group of House members and senators to settle the multiple impasses.

“The American people are watching an unwillingness by one side to negotiate and compromise,” Representative Tom McClintock, a California Republican, told reporters in Washington today. “They are watching utterly vindictive actions by the administration to intensify the pain of the shutdown and I think they are watching the collapse of the administration’s signature program, Obamacare.”

‘Votes Exist’

House Democrats rejected the idea, saying it would recreate the 2011 bipartisan supercommittee that was deadlocked.

“We don’t need a supercommittee,” said Representative Xavier Becerra, a California Democrat. “The votes exist right now” to reopen the government.

Still to be determined is whether House Republicans will consider a vote to raise the debt-ceiling this week or wait for the Senate to act, said two Republican congressional aides, speaking on condition of anonymity to discuss party strategy.

If all Senate Democrats along with six Republicans vote for giving Obama authority, they could send a debt-limit increase without policy conditions to the Republican-controlled House early next week. That would put pressure on Boehner, who opposes a clean debt-limit bill.

“We’ve got a situation where you have a calendar running, you have people who are frustrated and upset, and so let’s figure it out,” Senator Lisa Murkowski, an Alaska Republican, said in an interview at the Capitol yesterday. “We shouldn’t be dismissing anything.”

No Position

Senator Heidi Heitkamp, a North Dakota Democrat, wouldn’t take a position on a clean debt-ceiling increase when asked by reporters yesterday. Senator Joe Manchin, a West Virginia Democrat, didn’t commit his support either.

Republican Mark Kirk of Illinois will support a clean debt-limit increase. About a half-dozen others -- including Murkowski, John McCain of Arizona and Susan Collins of Maine -- kept open the option of voting for a debt-ceiling increase without conditions or helping one pass.

None of the proposals being floated has been embraced by both parties and all face long odds.

The chance of a U.S. government default is “reasonably high,” Bruce Ratner, chairman of developer Forest City Ratner Cos., said in an interview on Bloomberg Television today. There’s a “small group of people who don’t have an understanding of how serious it is,” he said, adding that “the ramifications are huge.”

Must-Pass Legislation

Bruce Josten, chief lobbyist at the U.S. Chamber of Commerce, said in a statement that the spending bill and the debt-limit increase are “must-pass” bills.

“The debt ceiling specifically must pass on a timely basis to avoid inflicting substantial and enduring damage on the U.S. economy,” he said.

The partial shutdown, which began Oct. 1, has shuttered government services such as Head Start preschool programs and national parks and furloughed federal employees. Other functions, such as mail delivery and Social Security benefits, are continuing.

Republicans are insisting on changing the 2010 Affordable Care Act, while Obama refuses to engage in discussions about tying policy conditions to opening the government or raising the debt limit.

The U.S. will run out of borrowing authority on Oct. 17 and will have about $30 billion in cash after that. The country would be unable to pay all of its bills, including benefits, salaries and interest, sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

The House has been passing separate funding bills for parts of the government, including the National Institutes of Health and national parks. Obama and Reid have rejected those measures.

“Wherever Republicans are feeling political pressure they put a bill forward,” Obama said at the news conference. “We don’t get to pick and choose based on which party likes what.”

To contact the reporters on this story: Kathleen Hunter in Washington at khunter9@bloomberg.net; Julianna Goldman in Washington at jgoldman6@bloomberg.net; Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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