President Barack Obama accused Republicans of siding with corporate jet owners over children and the elderly in deficit negotiations and compared Congress’s work ethic unfavorably with that of his pre-teen daughters.
Obama’s comments underscored the distance between the White House and Republicans on talks to cut the deficit and raise the government’s debt limit as Standard & Poor’s warned it would downgrade U.S. debt to junk status in the event of a default and the Senate canceled its July 4 recess to continue talking.
“The yellow light is flashing,” Obama said yesterday during a news conference, warning of dire consequences if Congress doesn’t raise the borrowing limit before Aug. 2, when the Treasury Department projects it will no longer be able to meet all its obligations.
“This is a jobs issue,” he said. “This is not an abstraction. If the United States government, for the first time, cannot pay its bills, if it defaults, then the consequences for the U.S. economy will be significant and unpredictable.”
If the U.S. misses a payment on its debt because Congress doesn’t raise the debt ceiling in time, Standard & Poor’s would cut the U.S. credit rating from its sovereign top-level AAA ranking to D, the last rung on its scale, said John Chambers, chairman of the company’s sovereign rating committee.
Pay the Bills
“If any government doesn’t pay its debt on time, the rating of that government goes to D,” Chambers said today in an interview with Erik Schatzker on Bloomberg Television’s “Inside Track.”
Other credit-rating services also have expressed concern over the delay. Moody’s Investors Service said on June 2 it expects to place the U.S. government’s Aaa credit rating under review for a possible downgrade if there’s no progress on the debt limit by mid-July. Fitch Ratings said June 21 it would place the U.S. on a negative rating watch if no action is taken by Aug. 2.
The two sides are at a standoff over demands from the White House for tax increases and from Republicans for cuts in the Medicare health-insurance program for the elderly and other entitlements after bipartisan talks on debt reduction led by Vice President Joe Biden collapsed last week.
‘It’s Only Fair’
Obama cast the differences in moral terms. “Before we ask our seniors to pay more for health care, before we cut our children’s education,” he said, “it’s only fair to ask an oil company or a corporate jet owner that has done so well to give up that tax break that no other business enjoys.”
House Speaker John Boehner rebuffed him, saying in a statement issued soon afterward that Obama “is sorely mistaken if he believes a bill to raise the debt ceiling and raise taxes would pass the House. The votes simply aren’t there, and they aren’t going to be there.”
The president met on June 27 with Senate Republican leader Mitch McConnell of Kentucky. McConnell today invited Obama to go to Capitol Hill to meet with Senate Republicans to “hear directly from our conference about the legislative realities” in Congress.
“Both sides agree that our deficits and our debt are unsustainable,” McConnell said in a speech on the Senate floor yesterday. “Beyond that, the differences are stark.”
Tea Party Pressure
Leaders of the Republican-controlled House must contend with a contingent of freshman members aligned with the Tea Party who have expressed skepticism about the urgency of lifting the debt limit, currently capped at $14.3 trillion. Boehner, an Ohio Republican, offered support for that view in an appearance June 28 on Fox News’ “Hannity” program in which he dismissed the Aug. 2 deadline as “artificial.”
Senator Tom Coburn, an Oklahoma Republican who last month dropped out of a bipartisan group of senators trying to reach a deficit-reduction deal, said on PBS’s “The Charlie Rose Show” on June 28 that it is increasingly likely House Republicans won’t act on the debt limit by the Aug. 2 deadline.
“If we don‘t have major changes to entitlements, I don‘t see how you get that vote through the House,” Coburn said.
While the U.S. deficit is dominating the debate in Washington, the interest rates the federal government pays to borrow funds have remained low amid a flight of money to safety because of the Greek debt crisis. Yields on 10-year Treasury notes declined from 3.73 percent on Feb. 8 to 2.86 percent on June 24, though they have begun to rise since as the risk of a default by Greece has eased in recent days. Yields on 10-year Treasury notes gained 7 basis points, or 0.07 percentage point, to 3.19 percent at 10:29 a.m. today in New York, according to Bloomberg Bond Trader prices.
One-year credit-default swaps are rising this year as investors seek insurance in case of a U.S. default.
The contracts climbed to 49.42 basis points as of yesterday in New York from this year’s low of 20.81 basis points in April, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
By contrast, one-year credit default swaps are 36.57 basis points for Japan and 143.31 basis points for Spain, according to data compiled by Bloomberg. Credit-default swaps pay the owner if a borrower fails to meet its debt obligations.
After facing Republican criticism for being absent from the table while his vice president led negotiations, Obama chided Congress for taking recesses and weekend breaks while the issue is unresolved.
He challenged Congress to give up its time away if negotiations on the debt limit don’t make “substantial progress” by the end of this week. He said lawmakers ought to follow the example of his daughters, Malia, 12, and Sasha, 10, who complete their homework “a day ahead of time.”
“They don’t wait until the night before. They’re not pulling all-nighters,” the president said. “You know, Congress can do the same thing.”
Senator Kent Conrad of North Dakota, the Democrat who chairs the Budget Committee, said he is planning to unveil his budget blueprint. The plan, he said, would shave more off the deficit than the leaders of Obama’s bipartisan debt commission envisioned -- their plan projected savings of $3.8 trillion over a decade -- and would include tax increases.
‘Get an Agreement’
At a private White House meeting with Senate Democratic leaders yesterday, Obama said he needed some time to work with Boehner on a debt deal, senators reported. “His goal, obviously, is to get an agreement,” Senator Dick Durbin of Illinois, the chamber’s second-ranking Democrat, said of Obama. Durbin said the president was essentially saying, “Give me a couple days to work with him.”
Most of the Republicans competing to take on Obama in 2012 have said that any action to raise the debt ceiling should come with spending cuts and changes to the budget process; one -- Representative Ron Paul of Texas -- opposes the move outright.
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