Lawmakers snipe, Bernanke warns as deadline nears

By Nancy Benac

Associated Press

Published: Thursday, July 14 2011 11:30 a.m. MDT

Federal Reserve Chairman Ben Bernanke arrives on Capitol Hill in Washington, Thursday, July 14, 2011, to testify before the Senate Banking Committee hearing to deliver the semiannual Monetary Policy Report.

Susan Walsh, Associated Press

Enlarge photo»

WASHINGTON — Fuming lawmakers pointed fingers at one another and President Barack Obama on Thursday as negotiations over raising the national debt limit entered a perilous endgame. Federal Reserve Chairman Ben Bernanke warned of economic damage, and an anxious Wall Street envisioned catastrophe if the U.S. defaulted on its obligations.

Obama and congressional leaders were meeting again late in the day at the White House. But the president's blunt declaration that "enough is enough" as the previous evening's talks ended did nothing to quell the rancor as a new day of positioning and posturing played out.

Senate Majority Leader Harry Reid stood on the Senate floor Thursday and sniped that House Minority Leader Eric Cantor shouldn't even be part of the talks anymore, noting that the Virginia Republican has been called "childish." Not long after, Senate Republican Leader Mitch McConnell stood to serve notice that the debt problem belonged squarely in Obama's lap.

"Republicans will not be reduced to being the tax collectors for the Obama economy," McConnell said. "Don't expect any more cover from Republicans on it than you got on health care. None."

Federal Reserve Chairman Ben Bernanke, testifying on Capitol Hill, warned legislators that failing to raise the debt limit in time to avoid default would only end up increasing the federal deficit, calling that a "self-inflicted" wound.

He said default would drive up interest costs on the $14.3 trillion debt and reduce government revenues by slowing economic growth.

None of the back-and-forth was a promising prelude to negotiations scheduled to resume at the White House on Thursday afternoon, less than three weeks before an Aug. 2 deadline for increasing the government's borrowing authority. Thursday's talks were to focus on the touchy matters of how to cut spending on Medicare and Medicaid, and raising more tax revenue.

Behind the scenes, meanwhile, legislators and White House officials continued to work on a backup plan offered by McConnell to avoid government default.

Obama is demanding that budget negotiators find common ground by week's end, as the financial world watches with growing jitters.

"No one can tell me with certainty that a U.S. default wouldn't cause catastrophe and wouldn't severely damage the U.S. or global economy," Jamie Dimon, CEO of JPMorgan Chase & Co., told reporters Thursday. "And it would be irresponsible to take that chance."

Already, Moody's Investors Service is reviewing the government's credit rating, saying there is a small but rising risk that the government will default on its debt. If Moody's were to lower the rating, the consequences would ripple through the economy, pushing up rates for mortgages, car loans and other debts. A Chinese rating agency, Dagong Global Credit Rating Co., also warned of a possible downgrade.

Reid sketched the potential consequences of default in dire terms, saying Social Security checks, veterans benefits and paychecks for troops would stop. "Millions of Americans could lose their jobs," he added.

A Reid spokesman later clarified that Social Security benefits "could" stop, as Obama previously had warned, but it wouldn't be a certainty.

Republicans have called such statements scare tactics.

In the cauldron of the White House Cabinet Room, Obama and top lawmakers bargained for nearly two hours Wednesday. Obama curtly ended the session when Cantor, R-Va., urged him to accept a short, monthslong increase in debt instead of one that would last through next year's presidential election.

"Enough is enough. ... I'll see you all tomorrow," Obama said, rising from the negotiating table and leaving the room, according to several officials familiar with the session.

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