The White House and congressional leaders remain adamant the United States will not default on its $14.3 trillion national debt, less than three weeks before a deadline for raising the federal borrowing limit. But a bipartisan deal to put the nation on a sustainable fiscal path shows no sign of materializing.
On one point top Democrats and Republicans agree: failing to raise America’s debt ceiling in time to avert a default on federal obligations is unthinkable. Jacob Lew is President Barack Obama’s top budget official. "All the leaders of Congress and the president have acknowledged that we must raise the debt limit, and the question is how," he said.
Lew spoke on ABC’s This Week television program.
The Senate’s number-two Republican, Jon Kyl, had a similar message. “The country will not default. Whether or not there are savings achieved in the process remains open to question," he said.
Weeks of negotiations have failed to yield a so-called “grand bargain” to trim U.S. budget deficits by $4 trillion over 10 years. The impasse has prompted several fallback plans to raise the debt ceiling if the $4 trillion target is not met.
Senate leaders are negotiating a plan that would allow President Obama to extend the federal borrowing limit even if majority votes in Congress do not materialize authorizing such a move. In the Republican-controlled House of Representatives, a vote is expected later this week that would tie a debt ceiling increase to a more-modest deficit reduction target, as well as a constitutional amendment requiring a balanced budget.
Neither plan of last resort is seen as solving America’s fiscal woes. Appearing on CBS’ Face The Nation program, Republican Senator Tom Coburn of Oklahoma criticized any attempt to shield Congress from painful votes to raise the borrowing limit. “It takes the pressure off all the politicians. It allows us to pass a debt limit [increase] without making the hard choices that this country has to make," he said.
Another Republican, Senator Marco Rubio of Florida, blasted any scaling back of deficit reduction goals. “The real problem here is not the debt limit. The real problem here is the debt. If all we do is raise the debt limit, and it is not accompanied by a credible solution to America’s debt problem, we are in big trouble," he said.
August 2 is the deadline for raising the federal government’s borrowing limit. Beyond that date, treasury officials say the U.S. government risks default.
Some Republican lawmakers have questioned this assertion, saying the United States could service the national debt and fulfill core obligations using tax revenue alone. Democrats and the White House dispute the claim, saying the government would have to choose between interest payments on the debt, funding programs that provide income and health care for retirees, and funding the U.S. military.
Office of Management and Budget Director Jacob Lew says there is still time strike a deal and avert financial ruin. But he adds that time is running out. “It is kind of unfortunate that things always have to get to the last minute. Sometimes there are no consequences. Right now, we are in a place where the world is watching, and we should get our business done," he said.
Credit ratings agencies have warned of a possible downgrading of U.S. debt, which would make U.S. Treasury bonds less attractive to investors and creditor nations and require higher interest rates to attract purchasers. Economists warn that higher interest rates would cripple America’s shaky economic recovery.