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Debt limit overtaking shutdown as U.S. crisis focus

By David Espo


LAST UPDATED: 03:02 p.m. HST, Oct 07, 2013

WASHINGTON >> A possible national default loomed closer on Monday as the partial government shutdown lingered, rattling markets in the U.S. and overseas. A gridlocked Congress betrayed little or no urgency toward resolving either of the threats.

Stocks got a case of the jitters on Wall Street, and halfway around the world China stressed the importance for the international economy of raising the U.S. debt limit.

"Safeguarding the debt is of vital importance to the economy of the U.S. and the world," Vice Finance Minister Zhu Guangyao said, according to the official Xinhua News Agency. China holds $1.277 trillion in U.S. Treasury bonds, second only to Japan.

At home, the political rhetoric was unchanged -- and generally uncompromising -- while a new poll suggested Republicans are paying a heavier price than Democrats for the deadlock.

President Barack Obama said the House should vote immediately on ending the partial closure of the federal establishment. He accused House Speaker John Boehner of refusing to permit the necessary legislation to come to the floor because he "doesn't apparently want to see the ... shutdown end at the moment, unless he's able to extract concessions that don't have anything to do with the budget."

Boehner, in rebuttal, called on Obama to agree to negotiations on changes in the nation's health care overhaul and steps to curb deficits, the principal GOP demands for ending the shutdown and eliminating the threat of default.

"Really, Mr. President. It's time to have that conversation before our economy is put further at risk," the Ohio Republican said in remarks on the House floor.

Obama said he would talk with the Republicans on those topics or virtually any others. But the White House has said repeatedly the president will not negotiate until the government is fully re-opened and the debt limit has been raised to stave off the nation's first-ever default.

White House aide Jason Furman told reporters that if Boehner "needs to have some talking point for his caucus that's consistent with us not negotiating ... that's not adding a bunch of extraneous conditions, of course he's welcome to figure out whatever talking point he wants that helps him sell something."

The current standoff is the latest in a string of clashes over the past three years between Obama and a House Republican majority that has steered to the right with the rise of the tea party.

Most Democrats and many Republicans have assumed the GOP will pay a heavier price for a shutdown than the Democrats, since that was the case in 1996.

And a survey released by the Washington Post-ABC said disapproval of Republicans was measured at 70 percent, up from 63 percent a week earlier. Disapproval of Obama's role was statistically unchanged at 51 percent.

In the Senate, where majority Democrats forced approval of legislation before the shutdown aimed at preventing it, officials said Majority Leader Harry Reid was drafting a bill to raise the current $16.7 trillion debt ceiling before the Oct. 17 deadline when Treasury Secretary Jacob Lew has said the government will reach its borrowing limit.

The measure would allow the government to meet its borrowing needs through the 2014 elections, officials said, although few details were immediately available.

Assuming Democratic support, the bill could pass the Senate quickly if Republicans merely vote against it as they press for concessions from the White House. But passage could be delayed until Oct. 17 if the GOP decides to mount a filibuster.

Separately, a White House aide said Obama would be receptive to an interim, short-term measure to prevent default.

In the House, Republicans declined to say when they would put debt limit legislation on the floor for a vote.

Instead, the public agenda for the day consisted of legislation to reopen the Food and Drug Administration, the latest in a string of measures to soften the impact of the partial shutdown. The measure was approved 235-162.

Earlier House-passed bills would end the shutdown at national parks, the National Guard and Reserves and the Women, Infants and Children nutrition program, and ease effects for the Washington, D.C., government, among other locations. Each of the measures cleared the House with some Democratic support.

Yet each is under a veto threat by the White House, and Reid opposes them in the Senate as far less than the full restoration of government services that most Democrats favor.

Still, the shutdown eased over the weekend, when about 350,000 civilian defense workers were recalled as the result of legislation Congress passed and Obama signed after the shutdown began.

That left an estimated 450,000 federal employees idle at agencies responsible for domestic programs, ranging from the Departments of Education to Energy, and including Labor, Health and Human Services, Interior, Transportation and more.

The shutdown was felt unevenly, however, because of bewilderingly complex rules and the ability of senior officials to declare some projects essential and therefore allowed to remain open.

Some routine food checks by the FDA were suspended, but the Department of Agriculture's meat inspections continued uninterrupted. Much of the nation's space agency was shuttered, although work continued on plans to launch a robotic probe to Mars, which has a once-every-two-years launch window.

Despite the order returning civilian Pentagon workers to their government jobs, defense contractor Lockheed Martin announced it would furlough about 2,400.

Top defense officials noted that despite the recall of most civilians, and the resumption of many activities across the Defense Department, there are critical programs and benefits that remain halted, according to a Pentagon report on their meeting with Defense Secretary Chuck Hagel.

For example, the department does not currently have the authority to pay death gratuities for the survivors of service members killed in action - typically a cash payment of $100,000 paid within three days of the death of a service member.

The Federal Emergency Management Agency, where Obama visited, served as a demonstration for the variable impact of the partial shutdown.

Officials said the agency had furloughed about 86 percent of its workers, then had recalled about 200 of them last week to prepare for the threat posed by Tropical Storm Karen in the Gulf Coast region.

With the threat passed, Obama said at least 100 of them have been re-furloughed.

"That's no way of doing business," he said.

Whatever the shutdown's inconveniences, it was easily rivaled by the warnings over a default, in which the United States would not be able to pay all its bills.

"A default would be unprecedented and has the potential to be catastrophic," a Treasury report said. "Credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world."

Private economists generally agree that a default on the U.S. debt would be extremely harmful, especially if the impasse was not resolved quickly.

Lew has said that while Treasury expects to have $30 billion of cash on hand on Oct. 17, that money would be quickly exhausted in paying incoming bills given that the government's payments can run up to $60 billion on a single day.


Associated Press writers Martin Crutsinger, Jim Kuhnhenn, Donna Cassata and Alan Fram contributed to this story.

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HD36 wrote:
If China, Japan, and anyone holding US Treasury bonds can't see this is the world's largest Ponzi scheme, then they deserve tol lose all their money.
on October 7,2013 | 03:31PM
Grimbold wrote:
The US is broke, only the official default is delayed because some still trust and buy Gov bonds and the Fed Reserve "buys" the unsaleable bonds, paying with IOU's, so in effect they are "paying" bonds with bonds. Either way our taxes will have to go up 30% or the Gov expenses go down by 30%.
on October 7,2013 | 03:45PM
HD36 wrote:
You're right, not only is the Fed buying $45 billion dollars a month in Treasury Bonds but also $40 billion a month in mortgage backed securities. That's only the tip of the iceburge as far as the manipulation of interest rates is concerned though. As you may remember the large banks, Morgan Stanley, JP Morgan, etc were making billions of the Fed QE program by front running and using a carry trade through the repo market. The taper talk caused the bond bubble to burst as rates shot up over 100 basis pts on the 10 year in a matter of months. Foreignors were selling en masse along with domestic bond funds. The same big banks that were making billions began to lose billions as the carry trade reversed and they had to cover their leveraged interest rate swap positions. A condition called convexity on Wall St. Just last month Obama called a special meeting with the heads of the big banks. They need to keep the 10yr below 3% or else they can't pay the interest on the $17 trillion debt. The banks have now instituted algorthym flash trading to push bonds higher/rates lower. Like a game of hot potatoes their computers bid the bonds up. The cost of this is massive capital destruction. Profit margins are squeezed, and capital is destroyed along with jobs. Did you watch the 60 min episide on disability fraud? Milliions are claiming disability as their unemployment runs out. Bad back, stress, you get it pretty easy and you're not counted as being unemployed anymore.
on October 7,2013 | 05:55PM
loquaciousone wrote:
Should we call Mr. Rogers and Big Bird to straighten out this mess the little boys and girls caused?
on October 7,2013 | 03:34PM
CriticalReader wrote:
One has the sense that way back when the constitution was being created, the Tyranny of the few being practiced by the Tea Party was what it was designed to prevent. Perversion of the constitutional purposes through use of flawed procedure could not have been "contemplated" by the "constitution". That is what has happened with the ability of a single legislator like John Boehner being able to prevent the Congressional House to simply vote on what a clear majority of America wants to happen. One thing that we as a nation have always prided ourselves on is the ability to survive the minority efforts at Tyranny that have threatened our existence. To do that we have always gone back to the constitution to re-affirm our collective goal and desire to avoid Tyranny by a few. That is why it is so unsettling to see and hear Tea Partiers hold out the "Constitution" as any sort of justification for threatening the destruction of our home. Such delusional claims of "righteousness" have destroyed empires, states and civilizations throughout history.
on October 7,2013 | 04:54PM
HD36 wrote:
If we followed the Constitution, specifically Article I sec 10, where no money shall be made of anything but gold and silver we wouldn't have a deficit in the first place. That article had the specific intent to limit the growth of government by constraining their ability to borrow money, grow the government, and leave the taxpayer on the hook for the bills. Tea Party Republicans at the core, adhere to this very basic principle of sound money. They do not believe in government debt financing which ultimately leads to debasement of the currency and a government so large that it sucks the life blood out of the economy. This process doesn't happen in a decade, it's been happening well over 40 years. The only president, who really stood up for the people and sound money principles was Eisenhower, who warned of the military industrial complex during his last speach. Empires have fallen because of currency debasement because governments refused to cut spending and the people simply ran out of money to pay increasing taxes and daily expenses. Rome is a good example. They slowly replaced gold and silver coinage to the point the people had tin and nickel coinage and only the politicians had the gold coinage. Those few who are courages enough to take a stand against the big socialist propoganda machine know that the game can't go on much longer.
on October 7,2013 | 05:37PM
CriticalReader wrote:
Yeah, but the gold standard bus has left. And, Clinton proved it was not impossible to balance a budget and finish with a surplus. The problem is the GOP hold and insistence on lowering or holding down tax rates on the higher brackets. It doesn't work. Things became unstable when the theory went from fantasy to policy in pursuit of that dogma.
on October 7,2013 | 07:51PM
HD36 wrote:
We're talking about raising the debt limit for the 55th straight time. so that the government can keep grwoing and undermining the real economy. You might as well rasise the limit to some unheard of number we could never reach. Then all our problems would be solved right? Only as long as ohter countries kept loaning us money with the realization that what they get back has far less purchasing power from debt monetization debasement of the currency.
on October 7,2013 | 10:22PM
ISCREAM wrote:
Tea Party is on a roll... “Mr. President, I rise today to talk about America’s debt problem. The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our government’s reckless fiscal policies. Over the past five years, our federal debt has increased by $XX.X trillion to $XX.X trillion. That is ‘‘trillion’’ with a ‘‘T.’’ That is money that we have borrowed from the Social Security trust fund, borrowed from China and Japan, borrowed from American taxpayers.” Oh...sorry...mixed up...this is a quote from President Obama when HE was in the Senate....
on October 7,2013 | 06:54PM
meat wrote:
Another crisis, no surprise.
on October 7,2013 | 05:39PM
hikine wrote:
Hail Emperor Obama. He wants more money to put us in debt! Stop run away spending. Stop the war in Afghanistan. Stop the future war with Syria which will cost the Government in the billions and lives. I'm tired of his rhetoric of blaming the Republicans. He is supposed to be the leader of the US and he will go down with the ship.
on October 7,2013 | 06:24PM
HD36 wrote:
The problem of too much debt can't be solved with more debt.
on October 7,2013 | 07:28PM
CriticalReader wrote:
It can with higher tax rates on the upper income brackets.
on October 7,2013 | 07:57PM
hawaiikone wrote:
If the IRS took every nickel from anyone making over 1 million it wouldn't even cover the deficit. Go all the way down to those making over 100k and you commit political suicide long before you get there. The group not paying their "fair share" seems to be on the bottom, not the top. But unfortunately that's your voter base. Regardless, there ain't no fair share from the top or the bottom that will solve this problem. The debt is around 40k per American, over 80k if we're talking about those actually paying taxes. Maybe the snowball is just too big to stop, no matter what we do.
on October 7,2013 | 10:04PM
CriticalReader wrote:
Really? How much money do all people under IRS jurisdication making over 1 million have? And, how much do those at the "bottom" have? Let's understand the numbers you have to make those statements.
on October 7,2013 | 10:13PM
HD36 wrote:
I'll give you a rough estimate: There's about 340 million Americans. 75% live pay check to paycheck, so roughly 10 million are millionaires. Thake all there money and we have 1 trillion dollars. Where do we steal the other $16 trillion?
on October 7,2013 | 10:29PM
hawaiikone wrote:
I have no idea how much they "have", but as a group they have earned income totalling arpund 700 billion. The bottom? Much less, probably. But I thought we were talking about "fair". We could send the troops and simply confiscate all assets of the wealthy, but I'm hoping your not pushing for that. Yet.
on October 8,2013 | 06:54AM
ISCREAM wrote:
Tea Party is on a roll... “Mr. President, I rise today to talk about America’s debt problem. The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our government’s reckless fiscal policies. Over the past five years, our federal debt has increased by $XX.X trillion to $XX.X trillion. That is ‘‘trillion’’ with a ‘‘T.’’ That is money that we have borrowed from the Social Security trust fund, borrowed from China and Japan, borrowed from American taxpayers.” Oh...sorry...mixed up...this is a quote from President Obama when HE was in the Senate....
on October 7,2013 | 06:53PM
CriticalReader wrote:
Then he matured, became wiser, dealt with the world instead of the backwoods, and said this in 2011: "I think that it’s important to understand the vantage point of a Senator versus the vantage point of a…President. When you’re a Senator, traditionally what’s happened is this is always a lousy vote. Nobody likes to be tagged as having increased the debt limit for the United States by a trillion dollars… As President, you start realizing, "You know what? We– we can’t play around with this stuff. This is the full faith in credit of the United States." And so that was just a example of a new Senator, you know, making what is a political vote as opposed to doing what was important for the country. And I’m the first one to acknowledge it."
on October 7,2013 | 08:53PM
HD36 wrote:
If he can just kick the can to the next election he won't go down as being the President during the greatest economic crash in the history of the world.
on October 7,2013 | 10:32PM
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