Bloomberg News

Brinkmanship Harms U.S. Even as Shutdown Ends, Obama Says

October 17, 2013

Barack Obama

President Barack Obama during a news conference in the White House briefing room on Oct. 16, 2013. Photographer: Martin H. Simon/Pool via Bloomberg

A stalemate over U.S. fiscal policy that shut the government for 16 days “encouraged our enemies” and slowed economic growth, President Barack Obama said a day after Congress passed a bipartisan accord to avert default.

Speaking at the White House after federal agencies opened for the first time since Oct. 1, Obama said the U.S. suffers because of repeated fiscal brinkmanship.

“It’s emboldened our competitors and it’s depressed our friends who look to us for steady leadership,” he said. The impasse caused “completely unnecessary damage on our economy.”

Lawmakers voted last night by wide margins -- 81-18 in the Democratic-led Senate and 285-144 in the Republican-controlled House -- to pass legislation ending the shutdown. Obama signed the bill just after midnight. The measure suspends the debt limit, puts government workers back on the job starting today and permits the U.S. to pay its debts, benefits and salaries.

By doing the bare minimum, lawmakers didn’t show they’re any closer to resolving the underlying issues of spending priorities and deficit-reduction measures, particularly in the House where a shrinking political middle makes compromise elusive.

Senate Minority Leader Mitch McConnell in an interview with the National Review today said Republicans “weren’t happy” about the shutdown and won’t use the tactic over the debt ceiling.

‘Mule’ Kicking

“One of my favorite sayings is an old Kentucky saying, ‘There’s no education in the second kick of a mule,’” he said. “The first kick of the mule was in 1995; the second one was the last 16 days. A government shutdown is off the table. We’re not going to do it.”

The focus now shifts to a new series of deadlines -- the first for budget negotiations with a Dec. 13 target -- that set up more rounds of political combat over taxes and spending on programs including Social Security and Medicare. The deal funds the government at Republican-backed spending levels through Jan. 15, 2014, and suspends the debt limit through Feb. 7.

McConnell, in a statement, reiterated that Republicans would resist Democrats’ efforts to raise spending levels Congress agreed to in 2011.

“We’re not going back on that agreement,” McConnell, a Kentucky Republican, said. “The bipartisan legislation we passed to reopen the government and prevent a default will continue” the spending cuts, he said.

Budget Talks

Top budget negotiators, including Republican Representative Paul Ryan of Wisconsin and Democratic Senator Patty Murray of Washington, began meeting today.

“Our job over the next eight weeks is to find out what we can agree on, and we have agreed we’re going to look at everything,” Murray said. “It’s going to be a challenge but we believe we can find common ground.”

Obama said lawmakers should now work toward a “balanced” approach to a budget agreement and change the country’s immigration system.

After meeting with Obama at the White House today, Italian Prime Minister Enrico Letta said the agreement to end the fiscal stalemate will help global markets.

“Yesterday’s decision was very important for the stability in the markets in the world, in Europe and in Italy, first of all,” Letta said.

Stocks Rose

U.S. stocks rose today, sending the Standard & Poor’s 500 Index (SPX) to a record after Congress ended the stalemate. The benchmark index increased 0.7 percent to 1,733.15 at 4 p.m. in New York, surpassing the previous high of 1,725.52 on Sept. 18. The Dow Jones Industrial Average fell 2.18 points to 15,371.65.

In China, Dagong Global Credit Rating Co. downgraded its local and foreign-currency assessments of the U.S. to A- from A. Dagong is based in Beijing and one of the nation’s four biggest credit-rating companies. China has the largest foreign holdings of U.S. Treasuries, and the latest monthly U.S. government figures showed it increased its total in July.

The benchmark 10-year Treasury note yield fell eight basis points, or 0.08 percentage point, to 2.58 at 2:42 p.m. New York time, according to Bloomberg Bond Trader prices.

Tea Party-allied Republicans, such as Texas Senator Ted Cruz, said they would find ways to keep up the fight against Obama’s health-care law even though they achieved no significant changes during this fight.

Lesson Learned

“The Republican Party has learned a lesson here, and I think you’re going to see a more mainstream Republican Party,” Senator Charles Schumer, a New York Democrat, said today on MSNBC’s “Morning Joe” program. “I don’t think we’ll have the same kind of brinkmanship on Jan. 15 and Feb. 7.”

The votes concluded a four-week fiscal standoff that began with Republicans demanding defunding of the Patient Protection and Affordable Care Act, and objecting to raising the debt limit and funding the government without policy conditions.

Obama and the uncharacteristically unified congressional Democrats stared down Republicans, particularly those allied with the Tea Party movement, who had sought to use the shutdown and debt ceiling as leverage even as more experienced lawmakers realized they didn’t have the votes and decried the strategy.

Judd Gregg, a former New Hampshire Republican senator and veteran of Obama’s first-term fiscal commission, said members of his party took on the wrong fight when they made it about Obama’s health-care law. Gregg is now chief executive officer of the Securities Industry and Financial Markets Association.

‘Dysfunctional Government’

“It was an exercise in dysfunctional government,” Gregg said in an interview. “It was a loser position from the beginning because there was no way in divided government you’re ever going to repeal Obamacare. We should have been debating as Republicans how we fix our fiscal house.”

The practice of governing by crisis has become so established in Washington that financial markets weren’t disturbed by the impasse, correctly anticipating a deal would come at the last moment as happened in a similar standoff two years ago.

Federal agencies were instructed to begin opening offices today in a “prompt and orderly manner” and furloughed employees were told to return to work, according to a memo from the Office of Management and Budget.

Vice President Joe Biden handed out muffins to returning workers at the Environmental Protection Agency in Washington.

Still, the 16-day shutdown wasn’t cost-free. It took a toll on workers who lost paychecks -- furloughed employees will receive back pay -- and on the U.S. economy. Standard & Poor’s said yesterday the shutdown shaved at least 0.6 percent from fourth-quarter 2013 gross domestic product growth, taking $24 billion out of the economy.

‘Temper Tantrum’

House Minority Leader Nancy Pelosi, a California Democrat, today called the shutdown “reckless” and of the House Republicans she asked: “Was their temper tantrum worth $24 billion? I don’t think so.”

Macroeconomic Advisers LLC said in a report prepared this week for the Peter G. Peterson Foundation that the budget fights in Washington have lowered U.S. economic growth by about 0.3 percentage points a year since 2009. The fiscal standoff added more than a half-point to this year’s unemployment rate, or the equivalent of about 900,000 jobs, the report said.

The U.S. Chamber of Commerce, the country’s largest business group, supported yesterday’s agreement, as did the Business Roundtable, an association of large-company chief executives. Several small-government groups, including the Club for Growth and Heritage Action for America, urged lawmakers to vote against the accord.

Ratings Watch

The votes occurred just hours before the nation was set to exhaust its borrowing authority, which the Obama administration had warned would have dire consequences within days given global reliance on U.S. Treasuries.

The Senate accord was unveiled a day after Fitch Ratings put the U.S. AAA credit grade on ratings watch negative, citing the government’s inability to raise the debt ceiling in a timely manner. After a 2011 debt-ceiling fight, Standard & Poor’s downgraded the U.S. credit rating to AA+ from AAA, criticizing the nation’s political process and lawmakers for failing to cut spending or raise revenue enough to reduce the budget deficit.

While public opinion polling shows Americans disproportionately blame Republicans for their handling of the debt fight, members have more than a year before they have to face voters again in midterm elections.

The Tea Party is less popular than ever, with many Republicans viewing the movement negatively, according to a poll released yesterday by the Pew Research Center for the People and the Press in Washington. Overall, 49 percent of the public has an unfavorable opinion of the Tea Party, up from 45 percent in June, while 30 have a favorable opinion, down from 37 percent two months ago.

Those numbers may be misleading, as the Tea Party movement is most effective as a political force in Republican-dominated congressional districts where incumbents look for a primary challenge.

To contact the reporters on this story: Terry Atlas in Washington at tatlas@bloomberg.net; Roxana Tiron in Washington at rtiron@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net

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


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