Obama, GOP clash over debt limit plan
US President Barack Obama warned Republicans on Monday that he won't negotiate with them over raising the nation's debt limit and said impinging on the government's borrowing ability would be "disastrous".
"The issue here is whether or not America pays its bills. We are not a deadbeat nation," Obama said during the final news conference before his second-term inauguration this Sunday.
If Congress fails to authorize an increase in the US debt limit, or ceiling, to $16.4 trillion, the federal government would likely default on its debts sometime in late, according to the Bipartisan Policy Center, a Washington think tank founded in 2007 by former Republican and Democratic senators.
Any failure to lift the debt ceiling - applied to money Congress has already committed to spend - or even to contemplate such a move, would be "irresponsible" and "absurd", Obama cautioned. Immediate victims would be recipients of Social Security and veterans benefits, he said, while government workers and vendors would go unpaid.
"They will not collect a ransom in exchange for not crashing the American economy. The full faith and credit of the United States of America is not a bargaining chip," the president told reporters at the White House.
Republican leaders in Congress have said any increase in the debt limit should be matched by spending cuts. Some in the party have even expressed willingness to allow a debt default or a shutdown of government operations as a way to force Obama to make deep spending cuts.
On Monday, Senate Republican Leader Mitch McConnell of Kentucky said in response to Obama's news conference: "The president and his allies need to get serious about spending, and the debt-limit debate is the perfect time for it. We are hoping for a new seriousness on the part of the president with regard to the single biggest issue confronting the country, and we look forward to working with him to do something about this huge, huge problem."
In the House of Representatives, where Republicans have a sizable majority, Speaker John Boehner said: "The American people do not support raising the debt ceiling without reducing government spending at the same time. The consequences of failing to increase the debt ceiling are real, but so too are the consequences of allowing our spending problem to go unresolved."
While Obama said he would be happy to talk to Republicans about ways to reduce the US budget deficit, he was adamant that the stakes of linking that to debt-limit talks were too high.
"What I will not do, is to have that negotiation with a gun at the head of the American people," he said.
"Investors around the world will ask if the United States is, in fact, a safe bet; markets could go haywire. It would be a self-inflicted wound on the economy. It would slow down our growth, tip us into recession."
Federal Reserve Chairman Ben Bernanke has described a potential US default as a "recovery-ending event" that would likely trigger another financial crisis.
When the US was near such a default in 2011, it lost its triple-A debt rating from Standard & Poor's for the first time.
China and Japan are the world's two biggest individual holders of US Treasury bonds. According to figures released by the Treasury Department in mid-December, the Chinese mainland held $1.162 trillion in T-bonds while Japan held $1.135 trillion. Taiwan and Hong Kong are among the top 10 US creditors.
Eswar Prasad, a Cornell University professor and former China division chief at the International Monetary Fund, said Obama has the advantage in Washington's current fiscal debate, but Republicans have signaled they will take a tough, uncompromising stance even though polls show weak support among Americans for this.
"Political brinksmanship could push things to the edge, but it is hard to conceive of a situation where the Republicans actually force a government shutdown," Prasad told China Daily. "Still, with neither side in a mood to compromise after the recently concluded budget negotiations, an adverse outcome cannot be ruled out.
"The absence of a deal to lift the debt ceiling would create turmoil in US bond markets as well as in other financial markets in the US and around the world. The added uncertainty could send the already-weak world economy into a recession," he said.
Despite the stakes, China and the rest of the world are basically bystanders in the fiscal-policy drama playing out in the US, Prasad said.
"While the entire world will suffer if the negotiations reach a standoff, there is little that China or any other country can do to influence the outcome," he said.
Some analysts believe a loss of confidence in US debt, much less a debt default by Washington, could prompt foreign creditors to unload large portions of their holdings, inducing others to follow and causing a run on the dollar in world markets. But others say a sudden selloff would be damaging to other countries' economic interests, inasmuch as many economies are tied to that of the United States, according to a report by the Council on Foreign Relations.
The report also cites long-term concerns of some US officials that persistent volatility in the dollar caused by a debt default would bolster calls in the international community to end its status as the world's reserve currency. A 2010 survey by consulting firm McKinsey & Co showed that less than 20 percent of business executives expect the dollar to be the dominant reserve currency by 2025.
chenweihua@chinadaily.com.cn
