THE WHITE House clashed again yesterday with congressional Republicans over a plan to raise the federal debt ceiling, even as both sides acknowledged that failure to agree could rock global financial markets this week.
“We may have a few stressful days coming up – stressful for the markets of the world and the American people,’’ said Bill Daley, White House chief-of-staff.
Both the Republican congressional leadership and the White House said rapid agreement was needed to prevent a potential loss of confidence in US assets, but continued to push their own solutions.
John Boehner, speaker of the House of Representatives, reiterated his support for a two-stage deal, with an initial stopgap agreement to reassure investors and more fundamental reform left until later.“There is going to be a two-stage process. It is not physically possible to do all of this in one step.”
He said he would seek to gain cross-party support for the proposal but was prepared to drive it forward over Democratic opposition if required.
However, Barack Obama’s administration, which has repeatedly said the president would veto a partial deal, said a temporary fix risked a loss of confidence and a downgrade in the US’s credit rating.
Mr Daley accused the Republicans of taking risks with the international standing of the country.
“It must be extended in a way that gives certainty to the economy through [2013] and not some short-term gimmick where we’re right back in this fix in six or eight months and the world looks at us once again and says . . . ‘these people can’t get their act together’.’’
The debt ceiling, which constrains US federal borrowing, must be raised by August 2nd to avoid the risk that the US will default on its government debt.
Both sides continued their attempts to shift the blame on to the other yesterday.
Mr Boehner said the White House had walked away from a potential comprehensive compromise deal last week that would have raised $800 billion in new tax revenue in return for swingeing spending cuts – an agreement that would have been unpopular with the conservative Tea Party Republicans who reject all suggestions of higher taxes.
Mr Boehner said he was still prepared to make that deal, but agreement would be difficult.
“It may be pretty hard to put Humpty Dumpty back together again,” he said, while stressing that the offer was still on the table.
The administration rejected this interpretation and argued that it was Mr Boehner who had walked out after failing to accept compromises on healthcare spending.
Tim Geithner, treasury secretary, denied the suggestion that the president reneged on a deal. “The president and the speaker got very close, but there was a whole range of things yet to be resolved at that point when the speaker pulled out on Friday,” he told CNN.
With markets unnerved by a debt crisis in Greece that threatens to spread across the euro zone, governments outside the US have watched the wrangling in Washington with alarm.
Vince Cable, UK business secretary, said: “The irony of the situation at the moment . . . is that the biggest threat to the world financial system comes from a few rightwing nutters in the American Congress rather than the euro zone.”
Despite threats of downgrades to the US by credit rating agencies, US treasury bonds have continued to trade at high prices in the past few weeks.
US states are devising contingency plans to deploy in the event of a federal default, which would threaten their budgets and stall the payments they receive from Washington. – (Copyright The Financial Times Limited 2011)
