WSJ: Obama Warns of Default Risk

POLITICS JULY 26, 2011
Obama Warns of Default Risk
President and Boehner Spar Over Competing Debt Plans as Deadline Approaches

With Congress deadlocked a week before the government runs out of cash to pay its bills, President Barack Obama warned Monday in his starkest terms yet that the U.S. is on the brink of a default that could trigger an economic upheaval.

Mr. Obama made his comments in a prime-time national address followed immediately by a response from House Speaker John Boehner (R., Ohio), who dismissed not only the president's approach, but virtually his entire record in office.

Both men spoke just hours after the top Republican and Democratic leaders in Congress unveiled competing debt plans. The two plans immediately faced opposition that could make it hard to pass their respective chambers.

While he urged the two parties to compromise, Mr. Obama also disparaged the Republican plan and called on Americans to contact their member of Congress to support his preferred alternative, a partisan twist that could harm his chances of breaking the impasse.

"We are left with a stalemate," he said. Without a resolution, "We would risk sparking a deep economic crisis—this one caused almost entirely by Washington."

"For the first time in history, our country's triple-A credit rating would be downgraded," Mr. Obama said. "Interest rates would skyrocket on credit cards, on mortgages, and on car loans, which amounts to a huge tax hike on the American people."

Mr. Boehner responded by defending his plan. "The president has often said we need a 'balanced' approach, which in Washington means, 'We spend more, you pay more,' " Mr. Boehner said. "The sad truth is that the president wanted a blank check six months ago, and he wants a blank check today. That is just not going to happen."

The harsh, nationally televised back-and-forth between the country's two top leaders barely came a week before the government was about to default on its obligations, a possibility both men decried as an economic calamity.

Earlier in the day, Mr. Boehner briefed Republicans on a plan that would cut the deficit by at least $3 trillion over 10 years while raising the debt ceiling in two stages. But two influential conservative leaders, Rep. Jim Jordan (R., Ohio) and Sen. Jim DeMint (R., S.C.), promptly attacked Mr. Boehner's plan as an abdication of responsibility.

Senate Majority Leader Harry Reid (D., Nev.) announced his own plan to increase the debt ceiling by $2.7 trillion, which would enable the government to cover its bills through 2012, while cutting spending a similar amount. But his package would require the support of seven Republicans to reach the Senate's 60-vote threshold, and it isn't clear if those votes are there.

The House plan will be voted on by lawmakers on Wednesday. Initially Senate Democratic lawmakers had also planned on holding a first procedural vote on their plan on Wednesday, but at the last minute decided to delay until at least Thursday.

A Democratic official said leaders wanted to wait and see if the House bill was defeated Wednesday, which would in effect leave their plan as the last option available.

The House vote on Mr. Boehner's plan would immediately raise the government's $14.29 trillion borrowing limit by around $1 trillion and provide for another increase of as much as $1.5 trillion next year.

Both increases would be accompanied by spending cuts of a greater size.

Mr. Obama strongly opposes a two-step increase, and Mr. Reid said his plan would meet Mr. Boehner's demand that any debt-limit increase be accompanied by spending cuts of an equal or greater size.

Party leaders' decision to pursue separate paths follows weeks of recrimination and on-again, off-again talks.

Both sides are still hoping to avoid being deadlocked by Aug. 2, when the Treasury Department says the U.S. government will run out of cash to pay all its bills if the debt ceiling isn't raised. Most Republicans and many Democrats say they won't raise it without an accompanying package of deficit cuts, but the two sides have been unable to agree on the specifics.

On Monday, each side sought to frame the debate to its advantage. Mr. Boehner said the first step of a debt-ceiling increase would carry the government through February or March, while imposing spending cuts of $1.2 trillion through a series of budget caps. In addition, Congress would vote by year's end on a balanced-budget amendment.

A committee of 12 lawmakers would then recommend ways to cut the deficit by at least $1.8 trillion more, probably through an overhaul of the tax system and changes to entitlement programs like Social Security and Medicare.

If Congress enacts the recommendations, Mr. Obama could propose a second debt-limit increase of up to $1.5 trillion, which could only be rejected by a two-thirds vote of both chambers of Congress.

"It would be irresponsible for the president to veto this plan because it is a common-sense plan and would help us avoid default," Mr. Boehner said.

But some Republicans were disappointed with his plan, especially its reliance on a committee to recommend future cuts. "America does not need deficit commission version 18.0," said Rep. Tim Huelskamp (R., Kan.). "America needs the 435 Members of the House and 100 Senators to do their jobs."

While GOP leaders see a two-step process as a way to guarantee sufficient spending cuts, Democrats complain that it would simply lead to another bitter fight in a few months, just as the election year is beginning.

The biggest savings in Mr. Reid's plan would come from taking credit for $1 trillion in cuts from winding down the wars in Iraq and Afghanistan—a move that some experts criticize as gimmickry, but which Mr. Reid said official congressional scorekeepers would validate.

Mr. Reid said a two-stage plan like Mr. Boehner's risks a U.S. debt downgrade because the second cuts might never occur. "Republicans are more interested in trying to embarrass the president than in doing what's right for the country," Mr. Reid said.

Because of Senate rules, Mr. Reid's plan would require a series of four votes stretching over several days, and needs the support of 60 senators. Democrats, who have 53 votes in the Senate, said they were confident they would get that support.

— Corey Boles, John McKinnon and Siobhan Hughes contributed to this article.
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