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With Debt Ceiling Looming, Stubbornness of Congress Could Spell Economic Catastrophe

Obama Meets With Members of Congress

House Republicans have shut down the federal government with the bizarre demand that President Obama scrap a healthcare law signed three years ago. The law, which went into effect yesterday, has the same lawmakers vowing that they will not agree to raise the government debt ceiling unless Obama defunds or delays the healthcare law. This vow presents an even scarier proposition than the government shutdown, because it would hamper the entire global economy, delivering the U.S. an economic blow from which it may never recover.

Each party in the government standoff is using the news media to score rhetorical points, but it’s not bringing the country any closer to a resolution. President Obama held a news conference in the Rose Garden of the White House, surrounded by regular Americans who will benefit from the law.

“As long as I am president, I will not give in to reckless demands by some in the Republican Party to deny affordable health insurance to millions of hard-working Americans,” the president said. 

He gestured toward his guests and added, “I want Republicans in Congress to know — these are the Americans you’d hurt if you were allowed to dismantle this law.”

While the federal health exchange and many state exchanges reported technical problems as they were overwhelmed by visitors, the White House and many observers pointed out that rather than looking at this as a problem, it was actually a sign that there was a hunger among the public for healthcare options. About 15 percent of the American population, more than 42 million people, are without health insurance.

Some lawmakers predicted that the budget shutdown would last at least until the nation is forced to raise the $16.7 trillion debt limit by Oct. 17. Rep. Paul D. Ryan of Wisconsin, the House Budget Committee chairman and former vice presidential candidate, said the deadline to address the debt limit, and avoid a default, could be “the forcing mechanism to bring the two parties together.”

However, House Republicans may not be moved, even by the looming debt ceiling deadline, as they have vowed to oppose an increase in the debt ceiling unless President Obama delays the health care law. If the debt ceiling is not raised on time, the president said Washington won’t be able to keep paying its bills.

“It’d be far more dangerous than a government shutdown, as bad as a shutdown is,” Obama said Tuesday. “It would be an economic shutdown.”

Lawmakers have never failed to raise the debt ceiling, but experts agree that the fallout could be catastrophic. If Congress failed to raise the debt ceiling, the government would have to get by with just the amount of cash that comes in every day.

Former Republican budget staffer Steve Bell told the New York Times it would mean “the Treasury has to wait all day for money to come in and see how much money they have and see how much they can pay,” he said. “It’s kind of a stunning thing because any business that ran that way would be bankrupt.”

Two years ago when Congress looked like it might not raise the debt ceiling, the government’s AAA bond rating was downgraded and the stock market plunged.

Even though stocks have rebounded and the government is still able to borrow money at rock-bottom prices, economist Nariman Behravesh of IHS Global Insight said it’s a dangerous gambit.

“The effect could be big and it would be global,” Behravesh says, “because the ripple effects would just spread all over the world.”

Standard & Poor’s analyst, Marie Cavanaugh, said that when other countries such as Russia and Uruguay defaulted just briefly, the result was lower bond ratings and higher borrowing costs. She asserts that a U.S. default would be unusual, because it wouldn’t be triggered by underlying economic stress.

“This would really be, in our opinion, the first time that a sovereign had defaulted because of brinkmanship in various branches of government,” Cavanaugh says.

The president called it a “self-inflicted wound” and pointed out yesterday that it wouldn’t actually save the government any money.

“If you buy a car and you’ve got a car note, you do not save money by not paying your car note,” he said. “You’re just a deadbeat.”

 

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