Lew Says Congress Must Avoid Last-Minute Drama on Debt Limit
Treasury Secretary Jacob J. Lew said Congress should raise the debt limit without last-minute brinksmanship and warned Republicans that the U.S. can’t “cut its way to prosperity.”
“We need to get the debt limit extended in a way that doesn’t create a crisis,” Lew said in remarks broadcast today on NBC’s “Meet the Press.” “Congress needs to do its job.”
Lew is appearing on news talk shows this weekend as President Barack Obama is giving a series of speeches casting his differences with congressional Republicans as a struggle over the future of middle-class families. Obama is making the case that his proposals for spending on education, infrastructure and research are essential to help middle-income Americans.
“Washington has to stop playing these brinksmanship games,” Lew said. “It’s not about who wins and who loses.”
Speaking on ABC’s “This Week with George Stephanopoulos,” Lew said Obama “has made crystal clear, he’s not going to negotiate over the debt limit” and that “Congress can’t let us default.”
When members of Congress return from their August recess, they and the president will face several decisions affecting the economy, including determining federal spending levels and raising the government’s $16.7 trillion debt limit. Republican lawmakers are demanding spending cuts in exchange for raising the debt ceiling while Obama is arguing that austerity will stifle the economic recovery.
Obama is seeking to use the power of his office to return attention to the economy following his push for a new immigration law, attempts to block his signature health-care law and Republican-led investigations into his administration.
Automatic, across-the-board budget cuts of $109 billion loom with the new government fiscal year, which begins Oct. 1, after $85 billion in cuts that took effect in March. Obama wants to end automatic cuts, while the Republican-controlled House has shown little inclination to take up a compromise to avoid them. The forced spending cuts, known as sequestration, have been a drag on the economy.
The “problems” created by sequestration can’t be repaired “by cutting domestic priorities in order to fund defense,” Lew said. “That’s unacceptable.”
In May, Lew said the U.S. can use special accounting measures to stay under the debt ceiling at least until September. The Bipartisan Policy Center, a nonprofit research group, said this month the Treasury’s cash on hand will be exhausted between mid-October and mid-November.
House Speaker John Boehner, an Ohio Republican, said July 23 that Republicans won’t agree to raise the debt ceiling without spending cuts, threatening a showdown with Obama.
Other Republicans say they can only agree to fund the government if the president suspends funding for his health-care law, known as Obamacare.
“We all know the government is going to get funded,” Senator Mike Lee, a Republican from Utah, said today on “Fox News Sunday.” “The only question is whether it gets funded with Obamacare or not.”
In the debt ceiling debate two years ago, lawmakers and the White House battled for months before Obama signed an increase into law on Aug. 2, 2011, the day the Treasury Department warned that U.S. borrowing authority would expire.
Standard & Poor’s, which downgraded the U.S. one step to AA+ in August 2011, changed its outlook last month to “stable” from “negative.”
The 2011 downgrade by S&P, the world’s largest credit rater, contributed to a global stock-market rout. U.S. government debt lost none of its attraction for investors, though. Yields on Treasury securities dropped to record lows rather than going higher after the downgrade. Yields on 10-year Treasuries dropped 0.74 percentage point in the seven weeks following the downgrade to a then-record 1.67 percent.
Lew declined to comment on who Obama might nominate to lead the Federal Reserve. Chairman Ben S. Bernanke, whose second four-year term expires Jan. 31, hasn’t indicated whether he would seek or accept a third term. Obama said last month that the Fed chairman has stayed in the post “longer than he wanted.”
Lew told ABC that Bernanke “has been an extraordinary and remains an extraordinary Fed chairman.”
Obama said in a July 24 interview with the New York Times that his nominee will be someone who embraces the central bank’s dual mandate to promote price stability and maximum employment, and he has narrowed his choice “to some extraordinarily qualified candidates.”
He declined to say who the finalists are. A group of Democratic senators is calling on Obama to nominate Fed Vice Chairman Janet Yellen, who is considered a front-runner for the job along with former Treasury Secretary Lawrence Summers.
About a third of the 54-member Senate Democratic caucus signed a letter praising Yellen and encouraging Obama to nominate her, according to three Senate aides who asked not to be identified discussing internal matters. The letter, sent July 26 and obtained by Bloomberg News, doesn’t identify any other candidate.
“They’re both extraordinarily talented people,” he said.
Lew reiterated his view that the “core” of the U.S. economy is growing, though not as much as he would like.
“We need to do more,” Lew said. “The president’s laid out a vision of the things we need to do. And we need to get outside of the kind of inside-Washington debate about who’s winning and who’s losing, and deal with the challenges that middle-class families want us to deal with.”
“We cannot cut our way to prosperity,” he said.
The jobless rate is 7.6 percent, close to a four-year low, and down from 10 percent in October 2009. Payrolls rose by 195,000 workers in June, exceeding the 165,000 gain projected by economists in a Bloomberg survey.
The number of long-term unemployed, or those out of work for 27 weeks or more, was 4.3 million in June. That’s down from a high of 6.7 million in April 2010, though higher than the 2.7 million in January 2009, when Obama took office.
Support from central banks and better-than-estimated earnings have driven the Standard & Poor’s 500 Index up as much as 151 percent from its March 2009 low to record highs. The benchmark gauge for U.S. equities increased 0.1 percent July 26 to 1,691.65, near the record close of 1,695.53 four days earlier.
The Fed has said economic data will determine the timing and pace of any reduction in its bond-buying. The central bank will start trimming its purchases in September, according to half of 54 economists in a July 18-22 survey by Bloomberg News. Bernanke said July 18 it is “way too early to make any judgment” as to whether policy makers will start tapering purchases in September. The Fed’s Open Market Committee next meets to review policy on July 30-31.
Growth in the first half of 2013 was restrained by the effect of tax increases and government budget cuts, which is likely to wane. Gross domestic product rose at a 1 percent annualized rate last quarter, according to the median forecast in a Bloomberg survey ahead of Commerce Department data due on July 31. The economy grew at a 1.8 percent pace in the first quarter.
In June, Fed officials forecast that the U.S. will grow 2.3 percent to 2.6 percent this year and 3 percent to 3.5 percent in 2014.
Consumer confidence unexpectedly increased in July to the highest level in six years as Americans’ views of their finances improved. The Thomson Reuters/University of Michigan final index of consumer sentiment advanced to 85.1 in July, exceeding estimates, from 84.1 at the end of June.
Americans may also be feeling wealthier as real estate prices climb and stocks hold near record highs. Home values in the U.S. increased 12.2 percent in May from a year earlier, the largest advance since February 2006, according to data this month from Irvine, California-based CoreLogic Inc.
Lew reiterated that there was “no evidence of political involvement” in the Internal Revenue Service scrutiny of Tea Party groups.
An audit in May by the IRS inspector general showed that the agency singled out Tea Party groups that sought tax-exempt status, sparking a controversy that has cost IRS executives their jobs and led to a criminal investigation.
“The president’s been clear and I’ve been clear that what happened there was unacceptable,” Lew said. “It was extremely bad judgment. And it’s just unacceptable for groups right or left to be targeted because of their political views.”
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