Obama Tells Congressional Leaders Time for Rhetoric Is Over
U.S. President Barack Obama
Joshua Roberts/Bloomberg
U.S. President Barack Obama.
U.S. President Barack Obama. Photographer: Joshua Roberts/Bloomberg
July 15 (Bloomberg) -- Joseph Balestrino, a fixed-income market strategist at Federated Investors Inc., discusses the outlook for the U.S. debt ceiling and credit rating. Balestrino, speaking with Deirdre Bolton on Bloomberg Television's "InsideTrack," also talks about the Treasury market, deflation risk and the the prospects of another round of quantitative easing by the Federal Reserve. (Source: Bloomberg)
July 15 (Bloomberg) -- Joseph Minarik, senior vice president of the Committee for Economic Development and a Bloomberg Government columnist, talks about negotiations among lawmakers on raising the U.S. debt ceiling. Minarik speaks with Deirdre Bolton and Erik Schatzker on Bloomberg Television's "InsideTrack." (Joseph Minarik is a Bloomberg Government columnist. The opinion expressed are his own. Source: Bloomberg)
July 15 (Bloomberg) -- Dean Baker, co-director of the Center for Economic and Policy Research, talks about the outlook for U.S. markets as lawmakers continue negotiations over reducing the budget deficit and raising the nation's debt limit. Baker speaks with Deirdre Bolton on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
President Barack Obama pressed Republican and Democratic congressional leaders to give him options for a deficit-cutting deal that lawmakers could support as part of raising the nation’s $14.3 trillion debt limit by an Aug. 2 deadline.
Obama also called a news conference for this morning in Washington to continue to push for a deal that combines spending cuts with revenue increases. Republicans support the cuts while opposing higher taxes.
White House Chief of Staff William Daley, speaking at a U.S.- Korea Business Council dinner at the U.S. Chamber of Commerce in Washington last night, said the president still wants as large a deficit-cutting plan as possible and believes “it is time to stop the rhetoric and start the action” on raising the debt limit. Daley said Obama won’t accept a solution that doesn’t extend at least through next year, when he faces re-election.
The administration has warned that it will be unable to pay all its bills and the nation’s credit rating will be downgraded, forcing higher borrowing costs, if the U.S.’s $14.3 trillion debt limit isn’t raised by Aug. 2.
“This is not only an issue of fiscal sustainability,” Daley said. “It is an issue of whether our elected officials can fulfill their most basic responsibility and fulfill the responsibilities that the American people sent them here to do.”
Making the Case
U.S. Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben S. Bernanke, in separate trips to the Capitol, made their cases for lifting the debt limit.
Adding more urgency to the dispute, Standard & Poor’s Ratings Services announced yesterday it may downgrade the U.S. top-level credit rating, saying there is an increasing risk of a substantial policy stalemate enduring beyond any near-term agreement to raise the debt ceiling.
The deadlock on fiscal policy has “only become more entangled” since April 18, when S&P placed a negative outlook on the U.S. AAA long-term rating, the service said in a statement. Moody’s Investors Service placed the nation’s credit rating under review for a downgrade on July 13.
Jeffrey Goldstein, Treasury undersecretary for domestic finance, said in a statement the warnings highlighted the need to “act expeditiously to avoid defaulting on the country’s obligations and to enact a credible deficit-reduction plan that commands bipartisan support.”
Fifth Session
At a fifth consecutive negotiating session at the White House yesterday, Obama told congressional leaders to report to him by tomorrow morning on the type of deal their members can support, Democratic and Republican officials said.
The president wants the leaders to tell him whether they believe their caucuses can agree to a bipartisan deficit-cutting package of $2 trillion or more, or if they should resort to a backup plan that could raise the debt ceiling through the November 2012 elections while postponing detailed decisions about cuts.
Obama and lawmakers don’t plan to hold another negotiating session today, and instead the congressional leaders will focus on sounding out their colleagues, Democratic and Republican aides said on condition of anonymity.
House Republicans and Democrats scheduled separate caucuses today. Obama told the lawmakers he may call another meeting over the weekend if no path forward has emerged, officials from both parties said.
‘Stressed Out’
In an interview with WSB-TV in Atlanta, Obama said that “America’s stressed out right now,” and that he has told Congress “don’t play games with this; we’ve got to make sure that we are fulfilling the full faith and credit of the United States of America.”
Republicans have demanded major spending cuts in exchange for their votes on the debt limit, while rejecting Democrats’ call for more tax revenue from high-income people.
Arriving back at the Capitol after yesterday’s negotiating session, Senate Minority Leader Mitch McConnell of Kentucky described it as “a good meeting.”
Officials from both parties described the session as cordial, following a tense meeting the previous day, and largely devoted to a presentation of options related to health-care spending and tax revenue. The White House pressed for an extension and possible expansion of the current 2 percentage point payroll tax deduction set to expire Dec. 31, said a Democratic official.
Broad Agreement
Obama continued to push for a broad agreement, which he told negotiators could include $2 trillion in deficit reduction if all sides gave a little, said a Democratic official.
Before the White House negotiating session, Senate Democratic leader Harry Reid of Nevada and McConnell were engaged in their own talks on backup options to avert a U.S. default by adding spending controls to a plan that would grant the president unilateral power to raise the debt limit, Reid told reporters yesterday.
Senator Charles Schumer of New York, the chamber’s third- ranking Democratic leader, said, while Democrats still want to see a comprehensive deal emerge from the White House-led talks, they are considering modifying a plan McConnell offered earlier this week as a “last-choice” alternative.
Granting Obama Power
McConnell’s proposal would grant Obama authority to raise the debt limit in installments unless Congress disapproves by a two-thirds majority -- a near impossibility with the Senate controlled by Democrats -- while Obama would also be required to offer spending reductions.
Those cuts would be advisory, and the debt-ceiling increase would occur regardless of whether lawmakers enact the cuts, McConnell said. The idea drew criticism from both sides of the aisle, particularly from Republicans who said it would fail to curb spending.
Schumer said one option under consideration to build legislative support would couple the McConnell plan with a package of spending cuts smaller than the amount Republicans have demanded -- a dollar in spending reductions for every dollar increase in debt authority.
Another possible means of attracting votes would be to add a commission modeled along the military base-closing panels to recommend additional spending cuts, said two Republican aides familiar with the talks who requested anonymity.
Casting Doubt
Still, Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, cast doubt on the options under discussion.
“I have not yet heard a package that I believe is credible in dealing with the debt that builds off of the McConnell plan,” he said.
Senior financial regulators came to the Capitol to highlight the economic consequences of a U.S. government default.
Geithner said there is “no way to give Congress more time” on lifting the debt ceiling. He commented after meeting with Senate Democrats.
“The eyes of the country are on us and the eyes of the world are on us and we need to make sure we stand together and send a definitive signal that we are going to take the steps necessary to avoid default,” he said.
‘Self-Inflicted Wound’
Bernanke said in testimony to the Senate Banking Committee that lawmakers would cause a “self-inflicted wound” if they prompt a credit-rating downgrade by failing to raise the debt ceiling.
Investors showed few signs of being fazed by the drama in Washington, largely because bond traders said they considered the possibility of default remote.
The Treasury attracted higher-than-average demand for a third consecutive sale at its auction of 30-year bonds. The bid- to-cover ratio on the $13 billion in bonds, which gauges demand by comparing total bids with the amount offered, was 2.80, versus a 2.64 average at the past 10 sales.
The yield on 10-year Treasuries was was little changed at 2.96 percent as of 10:51 a.m. in London, according to Bloomberg Bond Trader prices, after falling to a 2011 low of 2.81 percent on July 12. That compares with an average of 7.1 percent during the past four decades.
“The market seems to believe that the debt-limit situation will be resolved satisfactorily,” said Jeffrey Caughron, a partner at Baker Group LP in Oklahoma City who advises community banks on investments of more than $30 billion. “Most market participants see it unthinkable that the president and the Congress would allow a default, even a partial default on U.S. obligations.”
Increasing Tension
The increasing tension between Democrats and Republicans was underscored by dueling accounts of a White House meeting and its sour ending earlier this week. Obama “got very agitated” and left the room after House Majority Leader Eric Cantor suggested a vote on a smaller deal, Cantor said.
“Don’t call my bluff; I am going to the American people,” Obama said, according to Cantor, a Virginia Republican.
Cantor didn’t speak at yesterday’s session, a Democratic aide said.
Reid said Cantor has shown “he shouldn’t be at the table,” adding “it was childish” for Cantor to quit attending earlier negotiating sessions led by Vice President Joe Biden.
Laena Fallon, a spokesman for Cantor, responded: “This isn’t a question about personalities -- Eric, President Obama or Harry Reid. It’s about doing what is right for the country.”
To contact the reporters on this story: Margaret Talev in Washington at mtalev@bloomberg.net; Mike Dorning in Washington at morning@bloomberg.net.
To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net
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