Senate Democrats are drafting legislation to raise the nation’s debt limit without the type of unrelated conditions that Republicans have said they intend to demand, officials said Monday, as the White House signaled it would accept even a brief extension in borrowing authority to prevent an unprecedented default.
The details of the emerging measure were unclear, and it was not known when it would be unveiled.
Republicans have said they will seek long-term deficit cuts or reforms to benefit programs and perhaps a wholesale rollback in environmental rules as the price for raising the current $16.7 trillion debt limit. President Barack Obama has ruled out negotiations on the measure, although he has said he is willing to discuss fiscal and other issues with the GOP once the weeklong partial government shutdown is over and the Treasury is free to borrow again.
Gene Sperling, a senior Obama economic adviser, was pressed on whether he would rule out a two- or three-week extension on increasing the nation’s $16.7 trillion debt limit. Treasury Secretary Jack Lew has warned that on Oct. 17, he exhausts the bookkeeping maneuvers he has been using to keep borrowing.
“There’s no question that the longer the debt limit is extended, the greater economic certainty there will be in our economy which would be better for jobs, growth and investment,” Sperling told a breakfast sponsored by the newspaper Politico. “That said, it is the responsibility of Congress to decide how long and how often they want to vote on doing that.”
Economists say a default could trigger a financial crisis and recession that would echo 2008 — or worse. The 2008 financial crisis plunged the country into the worst recession since the Great Depression of the 1930s.
Sperling reiterated Obama’s vow not to negotiate on the debt because it would sanction the threat of default as a bargaining chip and increase the chance of default in the future.
A defiant House Speaker John Boehner has insisted that Obama must negotiate on changes to the 3-year-old health care law and spending cuts if he wants to end the shutdown and avert a default.
“We’re not going to pass a clean debt limit increase,” the Ohio Republican said in a television interview Sunday. “I told the president, there’s no way we’re going to pass one. The votes are not in the House to pass a clean debt limit, and the president is risking default by not having a conversation with us.”
The uncompromising talk rattled financial markets early Monday as stocks slumped. China, which holds $1.277 trillion in U.S. Treasury bonds and stands as the United States’ biggest foreign creditor, urged that all efforts are made to avoid a default.
Among congressional leaders, however, animosity marked the stalemate and resolution seemed elusive.
A statement from Senate Majority Leader Harry Reid, D-Nev., accused Boehner of a credibility problem and called on him to allow a vote on a straightforward bill to re-open the government.
“There is now a consistent pattern of Speaker Boehner saying things that fly in the face of the facts or stand at odds with his past actions,” said Adam Jentleson, a spokesman for Reid. “Americans across the country are suffering because Speaker Boehner refuses to come to grips with reality.”
In response, Michael Steel, a spokesman for Boehner, said it was “time for Senate Democrats to stow their faux outrage and deal with the problems at hand. The federal government is shut down because Democrats refuse to negotiate, and the debt limit is right around the corner.”
Boehner said Sunday that he lacks the votes “to pass a clean CR,” or continuing resolution, a reference to the temporary spending bill without conditions that would keep the government operating.
Lew has warned that the budget brinkmanship was “playing with fire” and implored Congress to pass legislation to re-open the government and increase the nation’s debt limit.
The shutdown has pushed hundreds of thousands of workers off the job, closed national parks and museums and stopped an array of government services.
The one bright spot on Monday is a significant chunk of the furloughed federal workforce is headed back to work. Defense Secretary Chuck Hagel ordered nearly 350,000 back on the job, basing his decision on a Pentagon interpretation of a law called the Pay Our Military Act.
Those who remain at home or are working without paychecks are a step closer to getting back pay once the partial government shutdown ends. The Senate could act this week on the measure that passed the House unanimously on Saturday.
Democrats insist that Republicans could easily open the government if Boehner simply allows a vote on the emergency spending bill. Democrats argue that their 200 members in the House plus close to two dozen pragmatic Republicans would back a so-called clean bill, but the Speaker remains hamstrung by his tea party-strong GOP caucus.
“Let me issue him a friendly challenge. Put it on the floor Monday or Tuesday. I would bet there are the votes to pass it,” said Sen. Chuck Schumer, D-N.Y.
In a series of Sunday television appearances, Lew said that while Treasury expects to have $30 billion of cash on hand on Oct. 17, that money will be quickly exhausted in paying incoming bills given that the government’s payments can run up to $60 billion on a single day.
Treasury issued a report on Thursday detailing in stark terms what could happen if the government actually defaulted on its obligations to service the national debt.
“A default would be unprecedented and has the potential to be catastrophic,” the Treasury report said. “Credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world.”
Private economists generally agree that a default on the U.S. debt would be extremely harmful, especially if the impasse was not resolved quickly.
“If they don’t pay on the debt, that would cost us for generations to come,” said Mark Zandi, chief economist at Moody’s Analytics. He said a debt default would be a “cataclysmic” event that would roil financial markets in the United States and around the world.
Zandi said that holders of U.S. Treasury bonds would demand higher interest rates which would cost the country hundreds of billions of dollars in higher interest payments in coming years on the national debt.
Boehner and Schumer were interviewed on ABC’s “This Week,” and Lew and Cruz on CNN’s “State of the Union.” Lew also appeared on CBS’ “Face the Nation,” ”Fox News Sunday” and NBC’s “Meet the Press.”
Associated Press writers Martin Crutsinger and Jim Kuhnhenn contributed to this report.
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Copyright © 2013 The Associated Press. All rights reserved.