Obama Signals Openness to Short-Term Debt Limit Increase
President Barack Obama said he could accept a temporary reprieve from the partial government shutdown and threat of a U.S. default while he negotiates with Republican leaders over fiscal and health policy.
Speaking at a news conference today at the White House, Obama said he’s willing to talk to Republicans about anything, including changes to his health-care law, once lawmakers end the shutdown and increase the country’s borrowing authority. He said he would accept a list of topics for discussion from Congress.
“What will happen is, we won’t agree on everything,” Obama said. “The parties are pretty divided on a whole bunch of big issues right now.”
House Speaker John Boehner, an Ohio Republican, spoke with Obama this morning and is scheduled to talk to reporters at 4:30 p.m. in Washington to respond.
Lawmakers in Congress began taking the first tentative steps toward resolving the standoff. Both sides are exploring actions that will be needed to end the week-old shutdown and raise the debt limit before U.S. borrowing authority lapses on Oct. 17.
Obama didn’t answer directly when asked whether he planned to make sure bondholders get paid first if Congress doesn’t act. He said there would be consequences for the economy and the creditworthiness of the U.S. if the government missed other payments such as those to Social Security beneficiaries.
If an individual doesn’t make required payments, the president said, “You’re just a deadbeat and you can anticipate that will hurt your credit.”
Senate Democrats are introducing a bill today that would raise the debt ceiling for a year, said Senator Charles Schumer, a New York Democrat. They are planning a test vote before the end of this week.
To succeed, they’ll need support from at least six Republicans on procedural votes. They’ve gotten backing from one Republican, while several others haven’t ruled out the possibility of supporting the measure.
“I am optimistic, even though that is against my nature, that Republicans will not hold the full faith and credit of the United States hostage,” said Senate Majority Leader Harry Reid, a Nevada Democrat.
There are signals that concern is building as the stalemate drags on. The benchmark Standard & Poor’s 500 Index (SPX) is down 4.1 percent since reaching a record on Sept. 18. The index fell 1.2 percent to 1,655.45 at the close of New York trading.
The Treasury sold $30 billion of one-month bills today at a rate of 0.35 percent, the highest since 2008 and more than double the rate on comparable one-month securities yesterday.
Separately, officials in China and Japan, America’s largest foreign creditors with combined holdings of more than $2.4 trillion in Treasuries, sought to raise pressure on the U.S. to resolve the impasse on the debt ceiling. A shift in asset allocation by China, Japan or other major holders of Treasuries could push up U.S. interest rates and cause swings in global currency markets.
Even as the probability of a U.S. government default is “very, very small,” volatility in the markets will increase in coming days, Mohamed El-Erian, chief executive officer and co-chief investment officer at Pacific Investment Management Co., said in an interview on Bloomberg Television’s “Bloomberg Surveillance” with Tom Keene.
It is also affecting consumers. Gallup’s Economic Confidence Index dropped 12 points last week, the second-largest decrease after mid-September 2008 following the collapse of Lehman Brothers Holdings Inc.
House Republicans, who had previously discussed pairing a debt-limit increase with a list of party priorities, haven’t released legislation or set a time line for action. Instead, they’re planning a vote to appoint a working group of House members and senators to settle the multiple impasses.
“The American people are watching an unwillingness by one side to negotiate and compromise,” Representative Tom McClintock, a California Republican, told reporters in Washington today. “They are watching utterly vindictive actions by the administration to intensify the pain of the shutdown and I think they are watching the collapse of the administration’s signature program, Obamacare.”
House Democrats rejected the idea, saying it would recreate the 2011 bipartisan supercommittee that was deadlocked.
“We don’t need a supercommittee,” said Representative Xavier Becerra, a California Democrat. “The votes exist right now” to reopen the government.
Still to be determined is whether House Republicans will consider a vote to raise the debt-ceiling this week or wait for the Senate to act, said two Republican congressional aides, who asked for anonymity to discuss party strategy.
If all Senate Democrats along with six Republicans vote for giving Obama authority, they could send a debt-limit increase without policy conditions to the Republican-controlled House early next week. That would put pressure on Boehner, who opposes a clean debt-limit bill.
“We’ve got a situation where you have a calendar running, you have people who are frustrated and upset, and so let’s figure it out,” Senator Lisa Murkowski, an Alaska Republican, said in an interview at the Capitol yesterday. “We shouldn’t be dismissing anything.”
Senator Heidi Heitkamp, a North Dakota Democrat, wouldn’t take a position on a clean debt-ceiling increase when asked by reporters yesterday. Senator Joe Manchin, a West Virginia Democrat, didn’t commit his support either.
Republican Senator Mark Kirk of Illinois will support a clean debt-limit increase. About a half-dozen other senators -- including Murkowski, John McCain of Arizona and Susan Collins of Maine -- kept open the option of voting for a debt-ceiling increase without conditions or helping one pass.
None of the proposals being floated has been embraced by both parties and all face long odds.
The chance of a U.S. government default is “reasonably high,” Bruce Ratner, chairman of developer Forest City Ratner Cos., said in an interview on Bloomberg Television today. There’s a “small group of people who don’t have an understanding of how serious it is,” he said, adding that “the ramifications are huge.”
Bruce Josten, chief lobbyist at the U.S. Chamber of Commerce, said in a statement that the spending bill and the debt-limit increase are “must-pass” bills.
“The debt ceiling specifically must pass on a timely basis to avoid inflicting substantial and enduring damage on the U.S. economy,” he said.
The partial shutdown, which began Oct. 1, has shuttered government services such as Head Start preschool programs and national parks and furloughed federal employees. Other functions, such as mail delivery and Social Security benefits, are continuing.
Republicans are insisting on changing the 2010 Affordable Care Act, while Obama refuses to engage in discussions about tying policy conditions to opening the government or raising the debt limit.
The U.S. will run out of borrowing authority on Oct. 17 and will have about $30 billion in cash after that. The country would be unable to pay all of its bills, including benefits, salaries and interest, sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office.
The House has been passing separate funding bills for parts of the government, including the National Institutes of Health and national parks. Obama and Reid have rejected those measures.
“Wherever Republicans are feeling political pressure they put a bill forward,” Obama said at the news conference. “We don’t get to pick and choose based on which party likes what.”
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