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Tuesday, July 23, 2024

U.S. threatened with credit rating hit if debt crisis continues

House Democratic leaders Nancy Pelosi and Steny Hoyer (Reuters)

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.


Associated Press writers Erica Werner and Alan Fram contributed to this report.

Copyright © 2011 The Associated Press

2 thoughts on “U.S. threatened with credit rating hit if debt crisis continues”

  1. Mark my words, these clowns will wait until 11:59:59 PM on August 1st to come to an agreement, they’ll raise the debt ceiling and then go back to printing more money….which is the cruelest form of taxation there is.

    One of these days, the rest of the world is gonna say “I don’ t want to buy your increasingly worthless Treasury bills” and the US will at that point be officially bankrupt.

    This crowd we call the US Congress couldn’t work their way out of a wet paper bag.

  2. These Republican threats remind me of Cleavon Little’s famous scene in Blazing Saddles, where he threatens to shoot himself in the head unless the mob backs off:

    “Cut Social Security and Medicare, or we’ll plunge the world into a massive financial crisis by destroying the US’s credit rating!”

    Every time I hear Boener make the threat, I just crack up…

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