Obama warns debt confrontation could send markets 'haywire'
United States president Barack Obama yesterday called on Republicans in the US Congress to lift the country’s borrowing limits without preconditions, saying markets could go “haywire” if there is another confrontation over the US debt limit.
At what was billed as the final press conference of his first term, Mr Obama said Republicans should not expect to be paid a “ransom” in the form of new spending cuts for agreeing to lift the debt ceiling.
If Congress did not lift the debt ceiling in time, the president said: “Markets could go haywire. Interest rates could spike for anyone who borrows money. It would be a self-inflicted wound for our economy.”
He said that Republicans should “choose quickly because time is running short” adding that the US is not a “deadbeat nation”.
The US reached its $16.4 trillion debt limit at the end of the year but the treasury has since taken measures to continue paying the country’s public debt, which it can do until late next month.
The Republicans say deep spending cuts must be part of any deal to raise the debt ceiling and have scoffed at proposals by Senate Democrats for the White House to ignore Congress if necessary.
A story in Politico, the Washington publication, said Republicans were seriously considering allowing the government to shut down, or for the US to delay paying its debts, to make their point on spending.
“I think it is possible that we would shut down the government to make sure President Obama understands that we’re serious,” House Republican conference chairwoman Cathy McMorris Rodgers told Politico.
The tension surrounding the debt limit marks the latest flare-up in the US’s seemingly unending budgetary battles.
On January 1st, after several rounds of negotiations, Congress struck a last-minute agreement to avoid much of the fiscal cliff – a mix of spending cuts and tax hikes due to hit the economy starting this month. But many of the big fiscal policy questions were pushed to this year, with deadlines approaching soon.
Democratic leaders in the Senate last week gave President Obama the green light to sidestep Congress and take executive action to avoid a default if no agreement is reached.
The move may have raised pressure on the White House to consider creative action in the event that lawmakers fail to forge a compromise on lifting the country’s debt ceiling by the end of next month.
Among the solutions that have been floated are a presidential invocation of the 14th amendment of the constitution – which says the debt of the US “shall not be questioned” – in order to continue borrowing.
The White House could also simply decide tax and spending laws take precedence over the debt ceiling constraints if they are in conflict, and keep spending money.
However, Mr Obama appeared to dismiss such efforts yesterday, saying: “There are no magic tricks here.”
The president said the US economy was “poised for a good year as long as Washington politics do not get in the way”. – Copyright The Financial Times Limited 2013