Obama Presses Congress for U.S. Debt Deal While Dismissing Republican Plan

By Julie Hirschfeld Davis and Margaret Talev - Jul 17, 2011 12:00 AM ET

U.S. House Speaker John Boehner (R-OH), right, listens as U.S. House Majority Leader Eric Cantor (R-VA), center, answers questions during a press conference on a balanced budget amendment at the U.S. Capitol July 14, 2011 in Washington, DC. Photographer: Win McNamee/Getty Images

President Barack Obama, pressing congressional leaders for a multitrillion-dollar agreement in deficit-cutting talks he said are “running out of time,” dismissed a plan that House Republicans are pushing as not “serious.”
As negotiators near an Aug. 2 deadline for raising the U.S. debt ceiling, the president is relying on the pulpit of news conferences to hold lawmakers to his challenge for a major deal. Yet time is working against leaders as the jockeying for position continues, with House Republicans planning a vote next week on legislation to limit spending and tie a $2.4 trillion increase in the debt ceiling to a constitutional amendment to balance the budget. That plan stands little chance in the Democratic-controlled Senate.
“The American people are not interested in the reality TV aspects of who said what and did somebody’s feelings get hurt” in the negotiations, Obama said July 15 at his second news conference of the week. “They’re interested in solving the budget problem and the deficit and the debt.”
The House’s plan to vote July 19 on an increase in the debt ceiling tied to a balanced-budget amendment will let Republicans go on record while offering no immediate resolution to the bid to reach a deficit-cutting deal by the Aug. 2 deadline Treasury Secretary Timothy Geithner has set for raising the $14.3 trillion debt ceiling.

‘Solid Plan’

House Speaker John Boehner, an Ohio Republican, called the chamber’s measure “a solid plan for moving forward,” yet seemed to concede it wouldn’t be the ultimate solution to the debt impasse. “Let’s get through that vote,” he told reporters July 15, “and then we’ll make decisions about what will come after it.”
Obama says the magnitude of cuts Republicans are proposing will be harmful and should be offset by elimination of many tax exemptions to deliver revenue for a deficit-cutting plan.
“I have not seen a credible plan -- having gone through the numbers -- that would allow you to get to $2.4 trillion without really hurting ordinary folks,” Obama said. “And the notion that we would be doing that, and not asking anything from the wealthiest among us or from closing corporate loopholes -- that doesn’t seem like a serious plan to me.”
While the daily talks that Obama had been holding with congressional leaders are on hold, Obama’s communications director, Dan Pfeiffer, said yesterday that Obama, Vice President Joe Biden and White House staff members had been in touch with congressional leaders and staff members from both parties to discuss various options.

Seeking Compromise

Boehner and Majority Leader Eric Cantor, a Virginia Republican, met privately at the Capitol July 15 with White House Chief of Staff William Daley and Geithner in search of a compromise, according to officials in both parties who spoke on condition of anonymity.
Items the group discussed included a “last-choice” plan by Senate Minority Leader Mitch McConnell, a Kentucky Republican, to hand the president authority to raise the debt ceiling in three stages through the 2012 election, an administration official said.
The session followed Obama’s public dismissal of the House Republicans’ latest proposal at his White House news conference. “You’ll probably see the House vote on a couple of things just to make political statements,” he said.

‘Do Our Jobs’

A constitutional amendment requires approval by two-thirds of both House and Senate members, and then ratification by three-fourths of the 50 states. “We don’t need a constitutional amendment,” Obama said. “What we need to do is do our jobs.”
Republicans said the measure would allow them to show they could stick to their principles without forcing a default.
“For us, we’re effective in the sense that we say, ‘OK, we’re going to do the responsible thing by raising the debt ceiling,’ but also in the long term, we get our deficit and debt under control,” said Republican RepresentativeSean Duffy of Wisconsin.
A U.S. debt default would cause panic throughout the financial system and long-term uncertainty, former Treasury Secretary Larry Summers told CNN.
“It seems to me an unthinkable financial risk to take,” Summers said in an interview on “Fareed Zakaria GPS,” scheduled for broadcast today. It would cause “a cascade that makes Lehman Brothers look like a very small event.”

Lehman Brothers

The bankruptcy of Lehman Brothers Holdings Inc. in September 2008 was the biggest in U.S history and was followed by a collapse of credit markets and a 43 percent decline in the S&P 500.
The measure scheduled for a vote next week would cut $111 billion in spending this year, then place annual caps on spending that would limit it to 19.9 percent of gross national product within eight years, according to a summary.
As Republicans reiterated that they won’t accept a net increase in tax revenue in a deficit-cutting plan, Obama continued to argue for such an approach.
“The American people are sold” on the idea of balancing spending cuts with tax increases,” Obama said. “The problem is members of Congress are dug in ideologically.”
While the debate continues in Washington -- Boehner says they are in “the fourth quarter” -- the bond market has shown no sign of worry.

Bond Market

Yields on benchmark 10-year notes reached the lowest level since December as investors sought a refuge in U.S. government debt. The Treasury attracted higher than average demand at this week’s three note and bond auctions, even after Moody’s Investors Service and Standard & Poor’s this week said the U.S. may lose its top credit ratings if lawmakers fail to lift the ceiling on the nation’s borrowing limit before Aug. 2.
A failure to act before then could lead to “a situation where interest rates rise for everyone,” Obama said at his news conference, creating in effect, “a tax increase for everybody.”
Raising the debt ceiling “is not some abstract issue,” he said. “These are obligations that the United States has taken on in the past. Congress has run up the credit card, and we now have an obligation to pay our bills.”
The administration has warned that it will be unable to pay all the government’s bills and that the nation’s credit rating will be downgraded, forcing higher borrowing costs, if the debt limit isn’t raised by the deadline.

Republican Briefing

Jay Powell, a former Treasury undersecretary under President George H.W. Bush, briefed House Republicans last week about the consequences of not raising the debt ceiling
“We were starting to realize that we can’t play games for so long anyways, but he did a very good job of laying out that we could basically afford to pay half our debts and that’s just not a place we want to be,” said Representative Tim Scott, a South Carolina Republican.
The Standard & Poor’s 500 Index rose 0.6 percent to 1,316.14 at the 4 p.m. close in New York. The gauge fell 2.1 percent this week. The Dow Jones Industrial Average added 42.61 points, or 0.3 percent, to 479.73.
The S&P 500 rallied 93 percent from its low in March 2009 through July 14 as the Federal Reserve used large-scale asset purchases to buoy the economy and companies posted earnings that beat analysts’ estimates. Of the 12 S&P 500 companies that have posted results so far this earnings season, 10 have beaten forecasts for per-share profit.

McConnell’s Proposal

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.
The debt-ceiling increase would occur regardless of whether lawmakers enact the cuts, McConnell said. The idea drew criticism from both political parties, particularly from Republicans who said it would fail to curb spending.
Republican presidential candidate Tim Pawlenty is among those opposing McConnell’s plan, calling it a “Band-Aid on a broken bone.” Pawlenty, Minnesota’s former governor, made his comment on “Political Capital With Al Hunt,” airing on Bloomberg Television this weekend.
At his news conference, Obama was asked if he has hope of an agreement.
“I always have hope,” Obama said. “Don’t you remember my campaign? Even after being here for two-and-a-half years I continue to have hope. You know why I have hope? It’s because of the American people.”