Last updated: October 7, 2013 10:06 pm

White House rejects demands to negotiate on shutdown

A protestor holds a sign against the government shutdown in front of the US Capitol in Washington on October 5 2013. The US government shut down for the first time in 17 years on October 1 after lawmakers failed to reach a budget deal by the end of the fiscal year©AFP

President Barack Obama will not back away from his refusal to negotiate with Republicans over America’s debt limit, his senior economic advisers said on Monday, but the administration has left open the door for a short-term increase in borrowings.

After a debt crisis two years ago that hit an already weak economy and prompted a sovereign downgrade, the White House’s hard line against the latest Republican budget demands is coming from the top, according to Gene Sperling and Jason Furman.

Barely a week ahead of a deadline to approve new US borrowings, the president’s two senior economic advisers said the “era of threatening default has to be over”.

“If you sanction through negotiation the legitimacy of somebody threatening default, then that is going to happen over and over again,” said Mr Sperling, the director of the National Economic Council, at a breakfast hosted by Politico. He said Mr Obama felt “very strongly” about the poor precedent it would set to engage in talks linked to the US borrowing limit.

The White House indicated its openness to a short-term extension of the debt ceiling in response to reporters’ questions, but said Congress had to decide the issue.

“It is the responsibility of Congress to decide how long and how often they want to vote,” said Mr Sperling.

It is not clear what negotiating framework for spending cuts would accompany any short-term increase, however, as both sides continue to dig in on their positions for future budgets.

Large sections of the US government have been shutdown over the last week after the White House and Democrats refused to countenance Republican demands that the core of Mr Obama’s signature health law be delayed for a year in exchange for passing a budget to fund the government for six weeks.

“The truth of the matter is there are enough Republican and Democratic votes in the House of Representatives right now to end this shutdown immediately, with no partisan strings attached,” Mr Obama said, during a visit to the Federal Emergency Management Agency.

By October 17, Congress must also approve new government borrowings – the so-called debt ceiling – a second deadline with greater ramifications for the world economy.

The White House is asking Republicans to pass “clean” bills – with no strings attached – to fund the US government and to raise the debt ceiling, which stands at $16.7tn. Without a debt ceiling deal, the US faces the threat of a potentially devastating default on its debt.

Republicans in the House of Representatives, where they hold a majority, have tied a debt-limit increase to deep spending cuts and reforms to expensive but popular health and pension programmes, without any higher taxes. They are expected to finalise their list of demands this week..

Meanwhile, Democrats who control the Senate are planning to present a bill raising the debt limit beyond the midterm congressional elections in November 2014 - without any other policy measures attached.

However, increasingly the two issues – the government shutdown and the debt ceiling – are being pushed together as the October 17 deadline approaches.

The White House officials said the president is willing to negotiate with Republicans over deficit reduction and tax reform, but not under the cloud of a government shutdown and a default on US debt. “You don’t need to hold a gun to his head, to have that conversation,” said Mr Furman, chairman of the White House council of economic advisers

A spokesman for Mr Boehner said Mr Sperling was suggesting it was preferable to default rather than negotiate with Republicans over the budget.

“This reckless, arrogant approach threatens our economy and ignores decades of precedent under divided government,” the spokesman said. “If America defaults on its debt, the president will have to explain why he didn’t even try to find a resolution.”

The White House officials dismissed the possibility that Mr Obama could simply order the Treasury to continue borrowing after the debt limit was breached, based on the constitution’s assertion that the credit of the US shall not be questioned.

But Mr Furman and Mr Sperling said White House lawyers had concluded that such an escape hatch was not available. In any case, the Treasury would not want to engage in debt auctions that were subject to legal challenges.

Mr Sperling added that “prioritising” debt payments over other obligations, as many congressional Republicans were insisting, would not be an option. “Prioritisation is not about avoiding default but managing default,” he said. “Prioritisation is default by another name.”

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