Debt fight continues despite Wall St. warning

DAVID ESPO

LAURIE KELLMAN

Asso­ci­ated Press

WASHINGTON — Fac­ing a dire warn­ing from a credit rat­ing agency, the Obama admin­is­tra­tion lob­bied some of Con­gress’ most con­ser­v­a­tive mem­bers Thurs­day for an increase in the nation’s debt limit. Repub­li­cans responded that the surest way to reas­sure finan­cial mar­kets was to enact deep deficit cuts.

At the White House, Pres­i­dent Barack Obama told Democ­rats he expected talks led by Vice Pres­i­dent Joe Biden to achieve only about 60 to 70 per­cent of the reduc­tions required as part of the deal, offi­cials said, leav­ing him and top law­mak­ers to agree on the rest. The Biden talks are aimed at pro­duc­ing a bipar­ti­san debt-cutting pack­age that could accom­pany a boost in the government’s abil­ity to bor­row more money.

Trea­sury Sec­re­tary Tim Gei­th­ner has told Con­gress that with­out an increase in the $14.3 tril­lion debt limit by Aug. 2, the gov­ern­ment will be forced into its first-ever default, with poten­tially cat­a­strophic results for the economy.

Gei­th­ner spent part of his day meet­ing pri­vately with fresh­men House mem­bers, mostly Repub­li­cans elected last fall with tea party sup­port and among the most com­mit­ted to cut­ting spending.

“I’m con­fi­dent two things are going to hap­pen this sum­mer,” he said after­ward. “One is we’re going to avoid a default cri­sis, and we’re going to reach agree­ment on our long-term fis­cal plan.”

GOP fresh­men leav­ing that meet­ing said that though the ses­sion with Gei­th­ner was cor­dial, they were mys­ti­fied that he emerged express­ing opti­mism because no new ground was broken.

“That’s what this admin­is­tra­tion does,” said Rep. Jeff Landry, R-La. “They dream it, so they believe it.”

Geithner’s meet­ing with the fresh­men had been planned in advance but occurred after Moody’s Investors Ser­vice said that if the par­ties fail to make progress soon, it would put the U.S. rat­ing under review for a pos­si­ble down­grade. It cited a “very small but ris­ing risk” that the gov­ern­ment will default on its debts.

Stan­dard & Poor’s, another major credit rat­ing agency, issued a sim­i­lar warn­ing in April.

Moody’s also warned the gov­ern­ment could face a down­grade if it fails to come up with a long-term plan to reduce the country’s deficit. The fed­eral bud­get deficit is on pace to exceed $1 tril­lion for the third straight year.

Repub­li­cans seized instantly on the statement.

“If we don’t get our fis­cal house in order, the mar­kets will do it for us,” Speaker John Boehner, R-Ohio, said at a news con­fer­ence, a point that other Repub­li­cans echoed as the day went on.

One fresh­man who attended the meet­ing with Gei­th­ner said the trea­sury sec­re­tary tried cit­ing the Moody’s report to put pres­sure on Republicans.

“He used that to say, ‘Guys, we’ve got to do some­thing about the debt ceil­ing cri­sis,’” said Rep. Joe Walsh, R-Ill. “The feel­ing in the room was, ‘No, we’ve got to do some­thing about the debt cri­sis’” — a ref­er­ence to the GOP’s belief that the more impor­tant issue is reduc­ing the debt.

A lower credit rat­ing could rip­ple through the U.S. econ­omy in the form of higher inter­est rates, hurt­ing con­sumers still try­ing to recover from the worst reces­sion in decades.

Ear­lier Thurs­day, House Democ­rats emerged from a White House meet­ing with Obama sound­ing as if they were at log­ger­heads with the GOP over debt reduction.

Democ­rats and the pres­i­dent agreed that higher rev­enues need to be part of a bal­anced debt-reduction pack­age, said Demo­c­ra­tic offi­cials with knowl­edge of the meet­ing. Offi­cials spoke on con­di­tion of anonymity to dis­cuss the pri­vate meeting.

Repub­li­cans oppose tax increases. Some GOP fresh­man who attended the meet­ing with Gei­th­ner said he stated that the admin­is­tra­tion wants higher taxes on the rich as part of a debt-cutting plan.

House Minor­ity Leader Nancy Pelosi, D-Calif., pressed Obama to avoid any deal that would result in reduc­tions in Medicare ben­e­fits, accord­ing to a Demo­c­ra­tic offi­cial famil­iar with Thursday’s White House meeting.

“It has to be clear: We’re not going to default,” she told reporters.

The pres­i­dent has not made an iron­clad guar­an­tee that he will oppose any reduc­tion what­so­ever in Medicare ben­e­fits. Ben­e­fit reduc­tions might result from his own plan for squeez­ing sav­ings from Medicare, which includes empow­er­ing an inde­pen­dent board to rec­om­mend changes.

How­ever, the pres­i­dent made clear Thurs­day that he wants to address health spend­ing in a way that reduces health care infla­tion and doesn’t shift costs onto seniors, accord­ing to a senior admin­is­tra­tion official.

In the talks Biden is head­ing, items like farm sub­si­dies and fed­eral pen­sions have been tar­geted for cuts. Those nego­ti­a­tions resume on June 9.

The White House on Thurs­day pushed back against calls from Repub­li­cans for Obama to show more lead­er­ship on the deficit and offer more specifics.

“We are at a point now where we don’t need new plans,” said pres­i­den­tial spokesman Jay Car­ney, argu­ing that Obama has already offered one. “We need to find com­mon ground around the shared goal of sig­nif­i­cant deficit reduction.”

Obama’s plan for reduc­ing the deficit by $4 tril­lion over 12 years relies half on spend­ing cuts but also elim­i­nates tax breaks and loop­holes, whereas Repub­li­cans say tax increases are off the table.

The argu­ment has been par­tic­u­larly fierce around Medicare, the giant health insur­ance pro­gram for Amer­i­cans 65 and older. Democ­rats are gain­ing polit­i­cally from pub­lic oppo­si­tion to a GOP pro­posal to send future ben­e­fi­cia­ries shop­ping for health insur­ance in the pri­vate market.

Posted by AP News on Jun 2 2011. You can follow any responses to this entry through the RSS Feed. Comments can be made below.