White House Adviser Krueger: Congress 'Playing With Dynamite' Over Debt Limit

Friday, 04 Jan 2013 10:46 AM

 

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The White House said on Friday it is vital for Congress to quickly resolve future tax and spending feuds, and raise the U.S. borrowing authority to avoid economic uncertainty.

"It is quite clear that the economy will be better if Congress does its job and does what it routinely has done historically, which is raise the debt limit without problem," Alan Krueger, chairman of the White House Council of Economic Advisers, said in an interview on Bloomberg television.

Speaking just days after President Barack Obama and lawmakers settled a hard-fought fiscal cliff deal to avert tax hikes and spending cuts, he warned a battle on borrowing costs and the budget might lead the U.S. to risk a credit downgrade. "I think we really are playing with dynamite with the debt ceiling," Krueger said in a separate interview on MSNBC.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

"Just go back to August 2011, we saw confidence plunge when Congress played Russian roulette with the debt ceiling," he said.

"We saw job growth grind to almost a halt. So the economy will certainly do better if Congress does what it normally does, which is raise the debt ceiling without drama."

Potentially bruising showdowns loom over the next two months on spending cuts and an increase in the nation's limit on borrowing. Republicans, angry the fiscal cliff deal did little to curb the federal deficit, promised to use the debt-ceiling debate to win deep spending cuts next time.

Republicans believe they will have greater leverage over Democrat Obama when they must consider raising the borrowing limit in February because failure to close a deal could mean a default on U.S. debt or another downgrade in the U.S. credit rating. A similar showdown in 2011 led to a credit downgrade.

But Obama and congressional Democrats may be emboldened by winning the first round of fiscal fights when dozens of House Republicans buckled and voted for major tax hikes for the first time in two decades.

Deteriorating relations between leaders in the two parties do not bode well for the more difficult fights ahead. Vice President Joe Biden and Republican Senate leader Mitch McConnell had to step in to work out the final deal as the relationship between House Speaker John Boehner and Obama unraveled.

Bemoaning the intensity of the fiscal cliff fight, Obama urged "a little less drama" when the Congress and White House next address budget issues like the government's rapidly mounting $16 trillion debt load. He vowed to avoid another divisive debt-ceiling fight before the late-February deadline for raising the limit.

"While I will negotiate over many things, I will not have another debate with this Congress about whether or not they should pay the bills they have already racked up," Obama said before he headed to Hawaii to resume an interrupted vacation.

Analysts warned that might not be so easy. "While the markets and most taxpayers may breathe a sigh of relief for a few days, excuse us for not celebrating," said Greg Valliere, chief political strategist at Potomac Research Group.

"We have consistently warned that the next brawl represents a far greater threat to the markets — talk of default will grow by February, accompanied by concerns over a credit rating downgrade," he said.

Rating agencies Moody's Investors Service and Standard & Poor's said the "fiscal cliff" measure did not put the budget on a more sustainable path. The International Monetary Fund said raising the debt ceiling would be a critical move.

"More remains to be done to put U.S. public finances back on a sustainable path without harming the still fragile recovery," said Gerry Rice, a spokesman for the IMF.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

© 2014 Thomson/Reuters. All rights reserved.

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