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Last updated: January 14, 2013 6:16 pm
Barack Obama urged Republicans in the US Congress to increase the country’s debt limit without preconditions, saying markets could go “haywire” if there was another confrontation over borrowing.
At the final press conference of his first term, a combative US president said Republicans should not expect a “ransom” in the form of spending cuts for agreeing to increase the debt ceiling.
If Congress did not do so, Mr Obama said: “Markets could go haywire. Interest rates could spike for anyone who borrows money. It would be a self-inflicted wound for our economy.”
“[Republicans] will not collect a ransom in exchange for not crashing the American economy – the full faith and credit of the United States of America is not a bargaining chip,” he said.
In an unusually lengthy, and at times rambling, press conference, Mr Obama said he would unveil proposals to restrict gun ownership this week and denied that his failure to socialise with Congress impeded his ability to forge compromises with Republicans.
The US reached its $16.4tn borrowing limit at the end of 2012 but the Treasury has taken steps to continue paying the country’s public debt.
Those “extraordinary measures” will run out between mid-February and early March, Tim Geithner, US Treasury secretary, said in a letter to congressional leaders on Monday.
He said the range of dates would be narrowed but was subject to uncertainty because of the looming tax filing season, when payments and refunds are “unpredictable”.
Unless Congress raises the debt limit by that time, Mr Geithner said the government could then only be funded through “cash on hand” which would not be enough to “meet existing obligations for any meaningful length of time”. As he urged lawmakers to act as soon as possible, the Treasury secretary described a wide range of payments – from Social Security and Medicare outlays, through military retirement and veterans’ benefits, to government contracts and disaster relief – that would be jeopardised.
After the deep recession and subsequent response, on top of deficits accumulated under George W. Bush, the federal government borrows about 40 cents for every dollar it spends.
The Republicans say deep spending cuts must be part of any debt ceiling deal, with some of the party’s members in Congress considering allowing the government to shut down, or for the US to delay paying its debts, to make their point, according to Politico, a Washington publication.
“It is possible that we would shut down the government to make sure President Obama understands that we’re serious,” said House Republican Conference chairwoman Cathy McMorris Rodgers, of Washington state.
“We always talk about whether or not we’re going to kick the can down the road. I think the mood is that we’ve come to the end of the road.”
The US has averted going over the fiscal cliff but fresh political battles loom over spending cuts, the deficit and economic policy
Mr Obama condemned such suggestions, saying “to even entertain the idea of this happening is irresponsible. It’s absurd.”
Ben Bernanke, chairman of the Federal Reserve, said on Monday it was vital for Congress to raise the debt ceiling to avoid a potential default, calling it one of the “critical fiscal watersheds” coming up for the government in the next few weeks. Congress should raise the ceiling to “avoid a situation where our government doesn’t pay its bills”, he said.
The tension surrounding the debt limit marks the latest flare-up in America’s seemingly unending budget battles. A deal over the fiscal cliff has pushed many big policy decisions into 2013.
Democratic leaders in the Senate last week gave Mr Obama the green light to sidestep Congress and take executive action to avoid a default if no agreement was reached on the debt limit.
Solutions that have been floated include a presidential invocation of the 14th amendment of the constitution – which says the debt of the US “shall not be questioned” – in order to continue borrowing.
But the president appeared to discard such suggestions on Monday, saying: “There are no magic tricks.”
The Republican congressional leadership, John Boehner, the House Speaker, and Mitch McConnell, the Senate minority leader, both rejected Mr Obama’s push on the debt ceiling.
“The American people do not support raising the debt ceiling without reducing government spending,” Mr Boehner said.
The president said the US economy was “poised for a good year as long as Washington politics do not get in the way”.
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