President Presses GOP, Floats Short-Term Borrowing Increase, but Boehner Balks Without Deficit Talks

Thursday, October 10, 2013

President Presses GOP, Floats Short-Term Borrowing Increase, but Boehner Balks Without Deficit Talks

Tensions Ratchet Up in Debt Battle

By
CAROL E. LEE, JANET HOOK and PATRICK O'CONNOR

President Obama looked to raise pressure on Congress to end a week-old partial government shutdown as the House and Senate headed down separate tracks to break a stalemate on government spending and the nation’s borrowing limit. Photo: AP.

WASHINGTON—President Barack Obama warned Tuesday of "economic chaos" if a political stalemate causes the U.S. to no longer be able to pay its bills, and said he would accept even a short-term increase in the borrowing limit to give lawmakers time to negotiate.
Mr. Obama's comments underscored rising concern at home and abroad, including in financial markets, that the U.S. could default on its financial obligations should the standoff continue through next week. The remarks were intended to pressure Republicans to pass bills to raise the debt ceiling and to fully reopen the federal government without GOP policy demands attached.
House Speaker John Boehner (R., Ohio) quickly shot down the idea of a short-term reprieve that excludes Republican priorities, saying any increase in the nation's statutory borrowing limit must be paired with deficit-reduction measures.
"What the president said today was, if there's unconditional surrender by Republicans, he'll sit down and talk to us," Mr. Boehner said after Mr. Obama held a news conference at the White House.
"We can't raise the debt ceiling without doing something about what's driving us to borrow more money and to live beyond our means," the speaker said.

The exchange left the stalemate no closer to resolution, with the parties dug in even on terms over which they would conduct negotiations.
Many federal agencies have been partially closed since Oct. 1, and the Treasury predicts it will run out of cash to pay its bills if the debt ceiling isn't raised this month.
The standoff prompted financial regulators to meet via phone Tuesday to discuss the government shutdown and the potential impact of a debt-limit breach, a Treasury spokesman said. The Financial Stability Oversight Council, which includes the Federal Reserve, banking and markets agencies, is monitoring effects of a possible U.S. default on short-term lending markets, including repurchase agreements and money-market mutual funds, according to a person familiar with the matter.
Financial markets are increasingly showing signs of stress. The Dow Jones Industrial Average slid 159.71 points Tuesday, or 1.1%, to 14776.53, its lowest close since Aug. 27 and its 11th drop in 14 trading sessions.
The Chicago Board Options Exchange's Volatility Index—the stock market's "fear gauge"—jumped to its highest level this year, reflecting rising demand for stock options affording protection from extreme price movements. The VIX is up 22% since the shutdown began Oct. 1.
The rate the government pays to borrow for a month rose to its highest level in five years, following a $30 billion Treasury bill auction that was deemed "awful" by Bank of America Merrill Lynch's Priya Misra, the firm's head of U.S. rates-strategy research. The cost of hedging for a year against a possible U.S. default via credit default swaps rose as much as 10%. The price of one-year U.S. CDSs has risen tenfold since Labor Day.

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saul loeb/Agence France-Presse/Getty Images

Boehner, shown, and Obama traded barbs over the approaching debt ceiling.

saul loeb/Agence France-Presse/Getty Images

Mr. Obama's comments underscored rising concern at home and abroad.

Reuters

Jeffrey Wismer, furloughed from his job at AmeriCorps, a federal community-service program, protests the government shutdown on the Washington Mall on Tuesday.