President Barack Obama has warned of immediate damage to United States creditworthiness if Congress fails to raise the debt ceiling – even if the treasury can find funds to avoid triggering a technical default in the bond market.
With billions of dollars of payments to social security recipients and lenders competing for possible attention if such a crisis does occur, the president shot down new suggestions among Republicans that the administration could prioritise payments to avoid lasting damage.
Dubbed the “pay China first” strategy by some Democrat critics, the argument growing in Congress is that October 17 is not the hard-and-fast deadline portrayed by the White House because the US has a choice over which bills to pay first and can avoid missing market-sensitive payments.
But the notion was rejected by Obama this week, who said that skipping any payments would alarm markets to such an extent that the cost of borrowing for the US government was bound to go up anyway.
“What I am told is: if the markets are seeing that we are not paying our bills on time, that will affect our creditworthiness – even if bondholders are paid on time,” he said.
Obama again ruled out taking extreme legal steps to circumvent the deadlock in Congress.
His comments came as positions hardened further between the White House and Republican leadership.
Obama reiterated that he would be prepared to accept a temporary extension of the debt limit and government spending authority as a prelude to talks with Republicans, but otherwise stuck to his position that he would not negotiate while Congress continues to threaten a default or maintains the shutdown.
This brought a swift, if predictable, response from House speaker John Boehner, who pointed to previous occasions when presidents have negotiated to avoid such a standoff.
“What the president said today is that, if there is unconditional surrender by Republicans, he will sit down and negotiate with us,” he said. “Well, that's just not how our system works.” – © Guardian News & Media 2013