President Barack Obama warned of a “deep economic crisis” without a compromise to avert an Aug. 2 U.S. default as he dueled Republican House Speaker John Boehner in back-to-back speeches on increasing the debt limit.
“We can’t allow the American people to become collateral damage to Washington’s political warfare,” Obama said. Moments later, Boehner responded that the president “wants a blank check” to continue government spending that is “sapping the drive of our people.”
Obama delivered his message yesterday in a prime-time television address from the White House, a ritual in moments of crisis and national tragedy, on a day cable television networks aired countdown clocks to default. Boehner spoke afterward from the U.S. Capitol.
Earlier in the day, Boehner, an Ohio Republican, and the Democratic leader in the Senate, Harry Reid of Nevada, unveiled competing plans to raise the $14.3 trillion debt limit.
Obama invoked Republican Presidents Ronald Reagan and George H.W. Bush to back up his call for shrinking the nation’s long-term deficit using a “balanced approach” of spending cuts and tax increases on the wealthy. As Reagan often did in confrontations with Congress, he urged Americans to contact their lawmakers to support the stance.
The president said he is “confident” a deal can be reached.
As the two men spoke in turn, the dollar weakened against most of its major peers and U.S. equity-index futures fell. The U.S. currency slid 0.3 percent against the Swiss franc and the yen as of 10:37 a.m. in Tokyo. Standard & Poor’s 500 Index futures lost 0.4 percent.
While Democrats and Republicans in Congress sharpened their attacks on each other, Boehner and Reid narrowed some of the differences in the approaches by the two parties.
Reid dropped Democrats’ insistence on tax increases in the plan he offered yesterday. His and Boehner’s proposals take as their starting points $1.2 trillion in discretionary spending cuts over 10 years and both establish bipartisan committees to recommend future savings, with a guaranteed vote in Congress.
“The general parameters seem to be shaping up,” said Patrick Griffin, who was President Bill Clinton’s chief congressional lobbyist from 1994 to 1996. “But there are a lot of big issues that need to be resolved.”
The two sides are divided on a Republican demand for a second debt limit vote tied to another $1.8 trillion in budget cuts that likely would come early next year, just as 2012 election campaigns are gearing up. Democrats would extend the debt ceiling until 2013 while making $2.7 trillion in total spending cuts, which includes $1 trillion from winding down the Iraq and Afghanistan wars, a savings Republicans criticized as a gimmick.
Obama endorsed Reid’s proposal as “a much better path,” though it doesn’t include the tax revenue increase that the president said is needed to address the deficit. He criticized Boehner’s plan as “kicking the can further down the road.” He said the two sides need to arrive at “a fair compromise.”
Boehner said he made a “sincere effort” to work with Obama to reach a deal.
“And the sad truth is that the president wanted a blank check six months ago, and he wants a blank check today,” Boehner said. “This is just not going to happen.”
Reid and Boehner confront challenges in their own chambers. Reid needs at least some Republican support to get the 60 votes necessary to overcome a filibuster. Boehner’s Republican majority in the House is undercut by members of the party who oppose any debt increase or want deeper spending cuts.
“There is a significant number that have real problems with this bill,” said Ohio Representative Jim Jordan, chairman of the fiscally conservative Republican Study Committee.
Senator Jon Kyl of Arizona, the No. 2 Republican leader, said leaders in both parties recognize it isn’t ideal for each chamber to move rival bills that may not have enough support to pass.
“If we can reach an agreement before there is a vote, that would be a good thing,” Kyl said after a meeting of Senate Republicans. “I don’t know that we can. But then again, both proposals might be modified a little bit or you could get bipartisan agreement.”
As the stalemate in Washington continued through the day, U.S. stocks and Treasuries declined. The Standard & Poor’s 500 Index slipped 0.6 percent to 1,337.43 in New York after losing as much as 1 percent. The 30-year Treasury yield rose six basis points to 4.32 percent, and 10-year yields added four points to 3.01 percent, still below the 10-year average of 4.06 percent.
Treasury two-week yields reached a two-week high after Mohamed A. El-Erian, whose Pacific Investment Management Co. runs the world’s biggest bond fund, said the U.S. may lose its AAA debt rating even if lawmakers reach a plan to avoid a default.
El-Erian said in an interview yesterday on Bloomberg Television that it will be a “big, big mess” if the U.S. defaults, spurring a sell-off in equities, the U.S. dollar and commodities excluding gold.
“Remember there is no other country that can step in to replace the U.S.,” said El-Erian, the Newport Beach, California-based chief executive officer and co-chief investment officer at Pimco. “The U.S. is the supplier of the reserve currency. The U.S. is the provider of a financial system that intermediates other people’s savings and investments. The U.S. is an AAA. The question is whether the U.S. can maintain an AAA.”
The cost of insuring U.S. debt rose, sending credit-default swaps on Treasuries up three basis points to 56.15, approaching the highest in 17 months, according to CMA Analytics.
This year’s vote would be the 101st time since 1940 that the debt limit has been changed. Congress last raised the federal debt limit by $1.9 trillion in February 2010. The then Democratic-controlled House approved the increase by a vote of 233-187. The Democratic-run Senate approved the increase in January 2010 by a vote of 60-39.