(Corrects figure on budget deficit as a percentage of GDP in 20th paragraph. For more on the shutdown, see EXT2.)
President Barack Obama opened the door to talks with Republicans on topics from health care to entitlement programs if they end the impasse over the U.S. debt ceiling.
Some possible paths out of the partisan impasse in Washington are starting to emerge as the U.S. government enters the ninth day of a partial shutdown, with less than a week before U.S. borrowing authority lapses Oct. 17. Each option is tentative, and lawmakers remain far from an agreement amid verbal sparring between Obama and House Speaker John Boehner.
Senate Democrats started setting up a test vote for later this week on a plan that would push the next debt-limit fight into 2015. Obama said he could accept a short-term increase without policy conditions that set the terms for future talks.
The support of at least six Senate Republicans is needed to overcome procedural obstacles to a debt-limit increase without conditions, and that’s far from guaranteed. Boehner, an Ohio Republican, rejected the idea of passing a debt-ceiling increase now and negotiating later, labeling that “unconditional surrender” and instead sought immediate talks with Obama.
“There’s going to be a negotiation here,” Boehner told reporters at the Capitol yesterday. “It’s time to have that conversation.”
Obama invited House Democrats to the White House today at 4:30 p.m. to discuss the fiscal standoff. Obama said yesterday he was willing to consider a short-term debt ceiling increase without conditions to buy time to negotiate.
A House Republican leadership aide, who didn’t want to be identified discussing private talks, said party leaders won’t agree to a short-term increase unless it contains Republican policy priorities.
At a White House news conference, the president insisted again that he wouldn’t negotiate under the risk of default or a government shutdown, comparing Republicans to hostage-takers and extortionists.
Obama wouldn’t answer directly when asked whether he would make sure that bondholders are paid first if Congress doesn’t act. He said the government was “exploring all contingencies.”
Giving priority to interest payments would prevent the U.S. from defaulting on its debt while requiring the government to balance its budget immediately, an austerity step that House Republicans would impose over 10 years.
“When I hear people trying to downplay the consequences of that, I think that’s really irresponsible,” he said.
Senator Michael Bennet, a Colorado Democrat, said it’s important for Obama “to hold his ground” on the impasse with Republicans.
What Is This Ceiling They're Trying to Raise?
“I think the likelihood is that we don’t topple over the debt ceiling,” Bennet said at a Bloomberg Government breakfast today. “Even as dysfunctional as we are, I don’t think we’re that dysfunctional.”
Senator Pat Toomey, a Pennsylvania Republican and member of the Budget Committee, said today “there’s zero chance that the U.S. government’s going to default on its debt.”
Toomey, speaking on MSNBC’s “Morning Joe” program, said the government brings in about 12 times as much tax revenue as it needs to pay interest on the debt. He said the administration wants to “hold the specter of catastrophe in front of Republicans to cow us and intimidate us.”
Standard & Poor’s 500 Index dropped less than 0.1 percent to 1,655.36 at 9:43 a.m. in New York, following the S&P 500’s biggest two-day decline since June, as Janet Yellen was picked to lead the Federal Reserve and lawmakers sought a path to end the budget impasse.
The S&P 500 Index (SPX) declined 1.2 percent yesterday to a four-week low, closing at 1,655.45 in New York. The gauge has fallen 4.1 percent since its latest record high on Sept. 18.
Treasuries advanced today, led by five-year notes, after the news of Obama’s plan to nominate Yellen fueled anticipation that the central bank will keep borrowing costs low.
One-month bill rates fell after climbing to the highest level for a benchmark security since 2008 yesterday. The 10-year yield rose one basis point, or 0.01 percentage point, to 2.64 percent at 10:02 a.m. New York time, according to Bloomberg Bond Trader prices. The 2.5 percent note due in August 2023 rose 2/32, or 63 cents per $1,000 face amount, to 98 3/4.
Unlike past fiscal feuds, this dispute is more about Republican opposition to the president’s health-care law and less about the amount of spending. The U.S. budget deficit in June was 4.2 percent of gross domestic product, down from 10.1 percent in February 2010 and the narrowest since November 2008, when Obama was elected to his first term, according to data compiled by Bloomberg from the Treasury Department and the Bureau of Economic Analysis.
House Budget Committee Chairman Paul Ryan said that the debate still offers the chance for a “breakthrough” and called on Republicans and Democrats to address the nation’s long-term fiscal situation and spur economic growth.
“Both sides should agree to common-sense reforms of the country’s entitlement programs and tax code,” the Wisconsin Republican wrote in today’s Wall Street Journal.
The government shutdown started Oct. 1 after Republicans insisted that further funding for many programs must be tied to a one-year delay in the mandate that individuals purchase health insurance.
Obama and Senate Democrats refused, and the resulting furloughs and agency shutdowns have slowed mortgage closings, small-business loans and nutrition assistance to poor mothers. Some programs, such as Social Security, continue uninterrupted.
Leidos Biomedical Research Inc., a subsidiary of Reston, Virginia-based Leidos Holdings Inc. (LDOS:US), furloughed 800 workers yesterday because the Frederick National Laboratory for Cancer Research was closed due to the government shutdown.
“Our people were told to go home,” said Stu Shea, president and chief operating officer of Leidos.
A debt-ceiling breach would be a more serious hit to the economy. The International Monetary Fund warned yesterday that a U.S. default could “seriously damage” the world economy.
In Congress this week, the House so far isn’t planning to vote on a bill that would include a debt-ceiling increase. Boehner outlined proposals last month that would tie party priorities to the debt limit before that idea ran into objections from hard-liners who wanted to focus on changing the health law in the shutdown fight.
That inaction shifts attention to the Senate, where Democrats are trying to pass a bill that would put pressure on Boehner as the Oct. 17 deadline draws closer.
Democrats, who control 54 seats in the 100-member chamber, would need the support of at least six Republicans on procedural votes to pass their bill.
The bill would suspend the debt ceiling through Dec. 31, 2014. Because the Treasury Department can use what are called extraordinary measures to stave off default, another increase wouldn’t be needed until sometime in 2015. The previous debt-limit suspension expired on May 18 and the extraordinary measures are lasting five months.
Some Senate Republicans, including Susan Collins of Maine, Saxby Chambliss of Georgia, Lisa Murkowski of Alaska, and Lamar Alexander of Tennessee, didn’t rule out backing the Democrats’ plan. They said they must first see details.
“I will be listening, and then I will decide what to do,” Alexander said.
One Republican senator -- Mark Kirk of Illinois -- said he would support a “clean” debt-ceiling measure.
Democrats may need more than six Republicans if some of their own members -- such as Joe Manchin of West Virginia and Heidi Heitkamp of North Dakota -- don’t support Obama’s plan.
“I haven’t said I would support or be in favor or opposed to anything until I see what they put on the table,” Manchin told reporters. “But I am looking for a bigger deal. I am not looking for kicking the can down the road.”
The House continued a series of bipartisan votes funding narrow pieces of the government, including the Food and Drug Administration and the Federal Emergency Management Agency.
Obama and Senate Democrats reject that piecemeal approach, saying Republicans shouldn’t get to pick and choose politically popular items.
The president urged Boehner to allow a vote on a temporary funding bill for the whole government without policy conditions.
“Let’s stop the excuses,” Obama said. “Let’s take a vote in the House, let’s end this shutdown right now, let’s put people back to work.”
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