October 7, 2013

Boehner: Negotiate or default

The defiant House speaker rejects calls to pass a ‘clean’ debt-limit increase.

The Associated Press

(Continued from page 1)

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House Speaker John Boehner, R-Ohio, leaves the House floor after votes on Saturday in Washington. On ABC’s “This Week” program Sunday, he said President Obama “is risking default by not having a conversation with us.”

The Washington Post/Melina Mara

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In this photo provided by CBS News, Sen. John Cornyn, R-Texas, speaks on CBS’s “Face the Nation” in Washington on Sunday. Cornyn said the partial federal government shutdown cannot end without President Barack Obama sitting down with congressional Republicans.”What he needs to do is to roll up his sleeves,” Cornyn said. “We’re not going to resolve this without the president engaging,” he said. “So far, he’s been AWOL,” he added.

The Associated Press

Some Republicans argue that missing such routine payments would not amount to a governmental default. They say that would occur only if the Treasury Department fails to make interest payments to investors.

But that could happen as soon as Oct. 31, when the department is due to pay out $6 billion in interest – making this Halloween especially scary.

“If they’re running low, that would really be the first time it’s plausible that they would be in jeopardy of not being able to make an interest payment,” Vanden Houten said.

In the meantime, the Treasury Department must roll over – or replace – billions of dollars in existing debt that has reached its maturation date. Investors are already demanding slightly higher rates on bonds that mature at the end of October. If anxiety over the debt limit intensifies, or if the United States begins to miss payments, analysts fear that investors could jack up rates dramatically, adding billions to federal budget deficits. Or they could stop showing up at Treasury auctions, an unprecedented outcome that could trigger panic in global financial markets.

CATASTROPHIC POTENTIAL

Last week, the Treasury Department issued a report on debt-limit “brinkmanship” that said default “has the potential to be catastrophic: 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, and there might be a financial crisis and recession that could echo the events of 2008 or worse.”

Even if the Treasury Department were able to keep paying investors, its overall injections of cash into the economy would fall dramatically until the debt limit was lifted. In a memo this weekend, Goldman Sachs economists predicted that missed federal payments could knock as much as 4.2 percentage points off gross domestic product, leading to “a rapid downturn in economic activity.”

Asked Sunday whether he agreed with such dire predictions, Boehner said yes. Senior Republican policy aides are scrambling to come up with options to suspend the debt limit that fall short of outright capitulation.

Among the options: A short-term suspension, perhaps no longer than six weeks, designed to force Obama to the bargaining table. But some Republicans argue that even a short-term suspension should come with strings attached.

A larger problem for Republicans appears to be figuring out what they want from the administration. While Sen. Ted Cruz, R-Texas, and his allies on the right continue to call undermining Obamacare their top priority, Boehner made no such demands Sunday.

In the ABC interview, Boehner tacitly acknowledged making a deal with Senate Democrats to avoid using the threat of a shutdown to attack Obamacare in exchange for an agreement to maintain the deep cuts known as the sequester through the fall.

He conceded that his rank and file forced him onto the path to shutdown by insisting on waging the fight over Obamacare.

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