May 11 (Bloomberg) -- Senator Charles Schumer of New York said credit markets may begin to worry before an August deadline for averting a federal default if there aren’t signs that Congress can reach a deal to raise the U.S. debt limit.
Schumer, the Senate’s third-ranking Democrat, said lawmakers reluctant to raise the $14.3 trillion debt ceiling are “playing with fire.”
While Schumer said he believes Republicans and Democrats will settle their fiscal impasse, he also urged policy makers to give themselves a cushion in reaching a deal to avoid spooking markets with the notion that they may fail to agree.
“If the credit markets see that we’re not making any progress over a two-month period,” Schumer said at the Bloomberg Breakfast today in Washington, “they may not wait till the night of Aug. 1. That’s the danger we face.”
The government is scheduled to hit the debt ceiling next week and options for avoiding default will be used up by early August, according to projections by Treasury Secretary Timothy Geithner.
During the hour-long session, Schumer said that following the raid that killed Osama bin Laden at a compound in a heavily military suburb of Islamabad, Pakistan is his “greatest worry of all.”
Schumer said the U.S. should re-examine the security of Pakistan’s nuclear weapons and re-evaluate the aid it provides to that country, given the complexity of the U.S.-Pakistani relationship.
Bin Laden’s residency in Abbottabad has raised questions about whether some Pakistani officials were aware of his presence in their nation.
The U.S. is “a lot safer than we were” on Sept. 11, 2001, Schumer also said, adding that he doesn’t worry every day about another terrorist attack on New York.
Schumer said the most recent threat briefing he received on May 6 didn’t indicate any “uptick” in planning for a U.S. attack following bin Laden’s killing. U.S. officials listening in on terrorist elements “haven’t seen anything of an increase” in such activity, he said.
Schumer compared the looming debt deadline to the sundown start of the Jewish Sabbath, explaining that some observant Jews who are forbidden to perform certain activities considered work during the weekly rest day stop an hour early to ensure they don’t violate the rules. That practice sometimes is called “building a fence around the Torah,” the Jewish holy text.
Lawmakers had “better build a little fence. I don’t know where, but we ought to build a fence and resolve in our own heads, ‘You can’t go down to Aug. 1 if Aug. 2 is the actual, absolute deadline,’” Schumer said.
Schumer, one of his party’s main political strategists, said both sides agree spending cuts are needed for domestic programs and that the argument is over what more needs to be done to slash the debt. He said Democrats are winning that debate by making it a choice between their proposal to also raise taxes on high earners and revoke some business tax breaks versus Republican proposals for “destroying Medicare.”
“We’ll take that fight, and that’s how it’s beginning to shape up,” Schumer said.
A budget plan authored by Representative Paul Ryan, a Wisconsin Republican, and passed by the House April 15 calls for replacing the traditional Medicare health-care system for the elderly by providing those currently under the age of 55 with subsidies to buy private insurance. Some Republican lawmakers encountered vocal opposition to the proposal at meetings with constituents during a congressional recess last month.
Schumer also said that Democrats “think the American people are with us” on taxes, and his party has the “high ground” on the issue.
Vice President Joe Biden is leading a bipartisan group of negotiators trying to pave the way for a vote on raising the debt limit by devising a plan to reduce the government’s long-term deficits. Republican congressional leaders have been insisting any provisions that boost anyone’s taxes can’t be part of such a plan, while Democrats say it must include increased revenues.
Gang of Six
The Obama administration and top congressional leaders will have to be the ones who cut the deal to avert default, Schumer said. While a bipartisan group of six senators that is working on a debt-reduction deal including entitlement changes, spending cuts and revenue increases “might move things in the right direction,” they won’t have the final word, he said.
“If we can get Republicans to come out for revenues -- even a small number -- that’s a good thing, so I’m encouraging of the Gang of Six,” Schumer said.
He said he opposed including changes to Social Security in such a package, as members of the group have said they will do.
Beyond the debt issue, Schumer said he saw potential for Congress this year to approve trade agreements, overhaul immigration laws and enact an energy bill.
Approval of a trade pact with Colombia is more doubtful than agreements with Panama and South Korea, he said.
Republicans and Democrats may be able to agree on energy legislation that avoids thorny issues, including increasing energy efficiency in buildings and enacting new standards for renewable energy, Schumer said.
He said Pakistan would be the top foreign policy concern for the U.S. over the next decade.
“It’s poor, it’s going to become more militant, it’s ethnically divided” and lacks a strong leader, Schumer said. “It’s too important a country to say, ‘We’re getting out and leaving it to its own devices,’ because it’s nuclear.”
If it turns out top leaders in Pakistan knew of bin Laden’s whereabouts or harbored him during the six years he was reportedly living in Pakistan, Schumer said it would be a “lightning bolt” shaking U.S.-Pakistan relations.
On Afghanistan, he said while Democrats are inclined to give Obama leeway to set his own pace for winding down U.S. involvement, there is “growing disaffection” within his party for a long-term presence there. That attitude is based in part on a lack of confidence in Afghan President Hamid Karzai and a sense that unmanned drones could do much of the work troops are now performing, Schumer said.
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