House Speaker John Boehner on Thursday offered a deal to increase the debt ceiling until Nov. 22, without reopening the government, in exchange for negotiations with President Barack Obama on spending cuts and tax reform.
As part of the deal, the Treasury Department would be permanently barred from using extraordinary measures to avoid default, The Wall Street Journal reported.
White House spokesman Jay Carney signaled at a press conference that the administration was open to the short-term increase and left open the possibility the president would sign legislation that would raise the debt limit but not reopen the government. “If a clean debt-limit bill is passed he would likely sign it,” Carney said.
There was no indication of whether Obama would accept the conditions on the Treasury.
Boehner said during a Thursday morning briefing that “the president is fond of saying that no one gets everything they want in a negotiation. And frankly, I agree with that. Nobody gets everything they want … What we want to do is to offer the president today the ability to move a temporary increase in the debt ceiling, an agreement to go to conference on the budget, for his willingness to sit down and discuss with us a way forward to reopen the government, and to start to deal with America’s pressing problems.”
News of a possible breakthrough caused the Dow to surge more than 240 points at midday, with all three major indexes closing more than 2% higher.
But Jason Furman, the administration’s top economic advisor, questioned at a breakfast meeting hosted by the Center for American Progress why Boehner would push ahead with a plan to raise the debt ceiling but not open the government, stating the administration had yet to see any legislation from the GOP.
In comments before the Senate Finance Committee the same day, Treasury Secretary Jack Lew said that “No Congress in 224 years of American history has allowed our country to default, and it is my sincere hope that this Congress will not be the first.”
Lew told lawmakers that Congress should pass legislation that includes both raising the debt limit and funding the government to “end the standoff.”
Under the current standoff between the administration and GOP lawmakers, the nation “now faces a manufactured political crisis that is beginning to deliver an unnecessary blow to our economy, right at a time when the U.S. economy and the American people have painstakingly fought back from the worst recession since the Great Depression.”
The uncertainty around raising the debt limit is also “beginning to stress the financial markets,” Lew said. “Yields on Treasury bills maturing in the second half of October and early November have already surpassed the peaks on similarly affected maturities in July 2011. At our auction of four-week Treasury bills on Tuesday, the interest rate nearly tripled relative to the prior week’s auction and reached the highest level since October 2008. Measures of expected volatility in the stock market have risen to the highest levels of the year.”
Indeed, political strategist Greg Valliere of Potomac Research questioned whether the administration would go along with any GOP plan that didn’t include opening the government. Valliere opined in his Thursday morning commentary that he anticipated “a scenario under which the debt ceiling is raised for a few weeks — while a continuing resolution, perhaps lasting a few months, opens up the government.”
Industry trade groups told members of the Senate Banking Committee the same day that investors were watching the political wrangling in Washington with bated breath. “Fund advisors and the investors they serve are watching Washington’s approach to debt and deficits with alarm,” said Paul Schott Stevens, president and CEO of the Investment Company Institute. “They see on all sides — at both ends of Pennsylvania avenue — a lack of action on our nation’s current fiscal policies. They are deeply concerned about the potential results of this inaction.”
Ken Bentsen, president of the Securities Industry and Financial Markets Association, said that if Congress fails to raise the debt limit “and the Treasury is unable to meet interest and principal payments coming due, it would in effect trigger a series of events which inevitably would lead to American taxpayers paying more to finance our debt.”
Senator Chuck Schumer, D-N.Y., argued that the some lawmakers were in “default denial,” with the going notion that the administration is bluffing about a default, and that a default doesn’t matter. Schumer asked ICI’s Schott Stevens if the nation should risk default.
Replied Schott Stevens: “It’s not an experiment that we have run or should run.”
Check out Obama Refuses to Negotiate ‘Under the Threat of Economic Catastrophe’ on ThinkAdvisor.