By James Politi in Washington
Republican lawmakers are ratcheting up the pressure on the Obama administration to clarify which payments it would make first – or halt – in the event Congress does not raise America’s $14,300bn borrowing limit by the early August deadline.
In separate letters sent to Barack Obama, president, and Tim Geithner, Treasury secretary, this week, two groups of Senate Republicans questioned the White House’s position that failing to lift the debt ceiling could in little more than two months lead to a catastrophic default.
The administration has long maintained that it would be “unthinkable” for the debt limit not to be increased because a default resulting in sharply higher interest rates and market turmoil could lead the US economy into a new recession. Officials have been reluctant to discuss what options they might have to limit the damage in the absence of congressional action, amid concern that any hint of flexibility at the Treasury – to prioritise interest payments with incoming tax revenue, for instance – could remove urgency from the negotiations to increase the borrowing limit.
But Republicans are increasingly voicing their dissatisfaction with that stance.
“We believe it is irresponsible to spread panic instead of taking responsible action to calm the markets. We believe it is irresponsible to ignore the broken political system and the very real possibility that the debt ceiling might not be raised in time,” a group of senators led by Ron Johnson of Wisconsin wrote to Mr Obama. “And we believe it is irresponsible not to develop robust contingency plans now – just in case.”
Meanwhile, Jim DeMint of South Carolina joined colleagues telling Mr Geithner: “At issue is the stubborn fact that ultimate responsibility to use available Treasury funds to honour the debt obligations of the US falls on you as secretary of the Treasury,” they said, adding that Mr Geithner should not “sow the seeds of doubt in the market regarding the full faith and credit of the US”.
“The suggestion by some in Congress that instead of meeting their responsibilities, the United States should for some indefinite period stop paying nearly half of its bills is both misguided and deeply irresponsible,” a Treasury spokeswoman said.
Despite the sharp divisions over fiscal policy and the harsh tone of the political rhetoric, most in Washington are still expecting Congress to reach an agreement to lift the debt limit by early August. Joe Biden, vice-president, has been leading negotiations with Republican and Democratic lawmakers that appear to be advancing towards a deal to cut US spending, set new fiscal rules, and increase the debt ceiling. So far, the sides have said they could envisage agreement on about $1,000bn in cuts, roughly half of what is generally considered the target for specific reductions.