Washington (AFP) – The “unthinkable” threat of a U.S. default weighed on Washington Monday, as a standoff over raising the government debt ceiling drowned out angst over a week-long government shutdown.
The White House hit back after Republican House Speaker John Boehner warned he would not allow Congress to raise the government’s borrowing limit before an October 17 deadline unless President Barack Obama offers concessions.
Washington’s building financial crisis was noted by China, with Beijing warning that the United States must act quickly to establish the credibility of the dollar, the world’s major reserve currency.
Concern also spread to previously calm investors.
The Dow Jones Industrial Average fell 136.34 (0.90 percent) to 14,936.24, on worries about the debt ceiling showdown and the U.S. government shutdown, now entering a seventh day.
The White House reacted sharply to Boehner’s remarks, warning Congress could trigger a disastrous default and shred Washington’s prized credit rating, as doomsday scenarios grew in credibility.
“We can’t threaten an economic catastrophe,” Obama said, decrying Republicans for using the debt ceiling as leverage.
“What we’re not willing to do is to create a permanent pattern in which unless you get your way, the government is shut down or America defaults,” Obama said during a visit to the Federal Emergency Management Agency.
“That’s not how we do business in this country. And we’re not going to start now.”
The U.S. government will be barred from borrowing after October 17 unless the current $16.7 trillion debt ceiling is lifted.
In the resultant chaos, Washington would begin defaulting on its debts, global stock markets could plummet and the fragile world economy could take a hit it can ill afford.
Gene Sperling, Director of the National Economic Council, said Boehner’s comments were disappointing and warned Obama could not allow the House of Representatives to hold him hostage over the debt limit because it would set a dire precedent for future presidents.
“The president has made clear the era of threatening default has to be over,” Sperling said, at a breakfast hosted by the Politico news organization, branding the idea of a default as “unthinkable.”
Obama is refusing to negotiate with Boehner on raising the debt ceiling, saying Congress has a duty to pay bills already run up by lawmakers.
But Boehner told ABC News on Sunday that the Republican-controlled House would not raise U.S. borrowing authority without concessions from the White House.
“The president is risking default by not having a conversation with us,” Boehner said.
Uncertainty remains over Boehner’s true intentions. He had been quoted by anonymous lawmakers in reports last week as saying that he would not allow the United States to go into default.
But Boehner is in a perilous spot between the wider interests of economic stability and the demands of Tea Party conservatives in his Republican coalition to whom he may well owe his job as speaker.
Obama said he was prepared to negotiate with Republicans on health care, taxes and budget issues — but only after the government is reopened and the debt ceiling raised.
Jason Furman, chairman of the president’s Council of Economic Advisors, said the consequences of default were “too terrible a thing to even talk about.”
“We’ve never actually tested it, we don’t know what happens,” he also told Politico.
There was a glimmer of an opening for a temporary end to the crisis on Monday, when the White House did not rule out a short-term extension of US borrowing capacity to permit tempers to cool.
Such a move might be a last minute solution for Boehner though, and no current such legislation is on the table.
China voiced the alarm many foreign governments are feeling at the prospect, which would once have been seen as unbelieveable that the mighty U.S. economy could go into default.
“As the world’s largest economy and the issuer of the major reserve currency in the world, it is important for the U.S. to maintain the creditworthiness of its Treasury bonds,” vice finance minister Zhu Guangyao told reporters.
“It is important for the U.S. economy as well as the global economy,” Zhu said.
“The clock is ticking.”
Concerns over possible default, the second of two political crises that could pummel the U.S. economy, overshadowed concern over the government shutdown, which went into a seventh day on Monday.
The government closed down after Congress failed to pass a new budget for the new fiscal year, turfing federal workers out of their jobs, closing national parks and strangling government services.
No serious negotiations appear to be under way, and there are increasing indications that the standoff will only be resolved in some kind of wider bargain that also includes raising the debt limit.
Republicans have demanded that Obama accept their attempt to defund or delay his trademark health care law in return for reopening the government and raising the debt ceiling.
AFP Photo/Mandel Ngan