Top US officials seek to reassure on debt

Senior US officials sought to allay concerns about a future debt crisis in the world’s largest economy, saying the country had taken a leap towards fiscal discipline with President Barack Obama’s new deficit plan.

In separate comments on Thursday, Jack Lew, White House budget director, and Tim Geithner, Treasury secretary, played down the political tensionsover fiscal policy, expressing confidence that Republicans and Democrats would quickly reach a deal to repair the US’s long-term finances.

“There is a shared sense of urgency in Washington on fiscal issues,” said Mr Lew, in a video interview with the Financial Times. “The fact that all the responsible parties have their own vision . . . of the degree of deficit reduction and fiscal consolidation that would be necessary should be reassuring.”

Mr Obama on Wednesday proposed cutting US deficits by $4,000bn over the next 12 years, a slightly less aggressive pace of reductions than the $4,400bn in savings over 10 years offered by Republicans in the House of Representatives last week.

Mr Geithner – speaking at an FT-Bertelsmann conference – said that despite differences on how to reach those targets, the US had made a “fundamental shift ... that makes it very hard for future presidents, future congresses to decide that you can live with the risk of higher deficits in the future”.

Mr Lew said he expected agreement on a framework to curb the mounting debt by the end of next month, with a possible vote in Congress at the end of June. “There’s going to be some tough period of time when people  . . . sit down and make some hard decisions and we think the right time is the next two months,” he said, adding that “with the right spirit of co-operation and patriotism we can get it done”.

But he cautioned that some details may not be agreed so rapidly, raising the possibility that any deal this year might revolve around broad fiscal goals, rather than specific reforms of government programmes and taxation.

Meanwhile, Paul Ryan, chairman of the House budget committee, said Mr Obama’s speech – which attacked the Republican plan – was essentially a 2012 re-election campaign event that damaged the chances of a fiscal grand bargain. “I think when you go after your political adversaries with the kind of demagogic terms and comparisons that the president did, that makes it harder,” Mr Ryan said.

Mr Lew and Mr Geithner warned against any delay in increasing the US’s $14,300bn debt ceiling, which Congress must approve by early July to avoid a potential default.

“There is no conceivable way in which this country ... can court that basic risk,” Mr Geithner said. Republicans want to use the debt ceiling vote to extract spending cuts and budget controls. Mr Geithner said lawmakers looking for “leverage” risked triggering a default and would “own responsibility for that miscalculation”.

“If you look at what we pay to borrow, the world basically believes that our problems are more manageable, our system will solve it,” he said, in a nod to low Treasury yields. “But we want to make sure that we’re earning that confidence every day.”