Fresh from a budget fight so raw that the Republican speaker of the U.S. House cursed the Democratic leader of the Senate outside the Oval Office, President Barack Obama and Congress are heading for an even bigger confrontation over raising the nation’s debt limit.
U.S. Treasury bond investors -- who most directly bear the risk of a government default -- aren’t alarmed. In a sign of the disconnect between Washington and Wall Street, investors remain confident the two sides will compromise rather than inflict what Obama called “catastrophic” consequences. Yields on long-term U.S. debt are near record lows.
The budget deal that Obama and lawmakers struck this week averted the so-called fiscal cliff of income-tax increases on most Americans and delayed automatic spending cuts until March 1. So while Obama has pledged not to negotiate over the debt limit, that timing raises the possibility that talks to address the automatic cuts would also include the debt ceiling.
Negotiations over raising the limit will play out in a bitter political climate. Some Republicans complain that Obama’s insistence on increasing tax rates for the wealthy rather than reverting to a more flexible position he took in 2011 amounts to using his re-election victory to bully them.
Lining up against the Republican leadership is an emboldened president, who appeared before the television cameras at the White House Jan. 1 to draw a line against accepting any conditions for an increase in the debt limit.
The president has a fresh political mandate from his re-election. And corporate leaders anxious to avert the economic disruption of a debt default have taken a more prominent role in pressing for compromise, Griffin said.