Obama Threatens August Social Security Checks in Debt Ceiling Gamble

Wednesday, 13 Jul 2011 12:26 PM

 

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WASHINGTON — President Barack Obama raised the stakes in the third straight day of budget talks Tuesday by warning that senior citizens and veterans may suffer first if the debt ceiling is not raised by Aug. 2.

The comments came as top Republicans toughened their stance in the deficit reduction talks.

Hours before heading to the White House, Senate Republican leader Mitch McConnell said a "real solution" to the U.S. debt problem was unlikely while Obama was in office.

As politicians sparred, U.S. business leaders pressed Obama and congressional leaders to act swiftly to raise the $14.3 trillion U.S. debt ceiling or risk derailing a sputtering economic recovery and endangering the global financial system.

Obama said in an interview with U.S. television network CBS that checks to recipients of the Social Security retirement program may not go out in early August if he and congressional leaders do not agree on a debt deal.

"I cannot guarantee that those checks go out on August 3rd if we haven't resolved this issue," Obama said, according to excerpts of the interview released before its broadcast.

"Because there may simply not be the money in the coffers to do it," Obama said. He said veterans checks and disability benefits could also be affected without a deal.

Despite months of talks, Republican and Democratic leaders were still at an impasse over a deficit reduction deal that would clear the way for Congress to raise the debt ceiling.

Republicans have balked at raising the debt limit without steep spending cuts, while Democrats say new tax revenues need to be part of any deal. Republicans oppose any increase in taxes which they say would hurt the economy.

"I have little question that as long as this president is in the Oval Office a real solution is probably unattainable," McConnell said in a hard-hitting speech on the Senate floor.

But he said Republicans would ensure the government does not default on Aug. 2, when the Treasury Department has warned it will run out of money to pay the country's bills.

Failure to seal a deal by Aug. 2 could spook investors, causing U.S. interest rates to surge and stock prices to plummet, and could put the United States at risk of another recession, Treasury officials and private economists have warned.

Obama's warning that senior citizens -- an active voting group -- could suffer first if a deal is not reached could give lawmakers a nudge ahead of 2012 elections. Seniors punished Democrats last year for including Medicare cuts in their healthcare package and then turned on Republicans in a special New York election this year over a Republican plan to overhaul the healthcare program for the elderly.

It also evoked memories of the debt limit crisis of 1996 when Treasury Secretary Robert Rubin warned he would not be able to send out Social Security pension checks the next month if the ceiling were not raised.

The Republican-controlled House immediately voted to allow the government to issue more debt to make those Social Security payments.

If the debt limit is not raised in August, the Treasury would not be able to pay about 45 percent of its bills without borrowing more money, according to the Bipartisan Policy Center think tank.

That would force the administration to make some difficult choices. One option could be to postpone a disbursement of more than $49 billion to Social Security recipients due on Aug. 3.

 

UNCERTAINTY SEEPING INTO MARKETS

Despite the heated rhetoric, investors assume that Washington will ultimately avert a crisis. Yields fell to seven-month lows on the benchmark 10 year Treasury bond Tuesday morning, fueled by debt worries in Europe.

But the impasse has investors' attention, and as the clock ticks toward Aug. 2 with no deal in sight, it is contributing to a broadly negative sentiment on Wall Street.

Treasury Secretary Timothy Geithner, who has warned of catastrophic consequences if Congress fails to raise the debt ceiling, held firm Tuesday to vows that the United States would not default. "Failure is not an option," he said.

Business leaders showed their growing concern by sending Obama and congressional leaders a letter Tuesday that warned of the consequences if lawmakers did not reach a deal.

After briefing Republican members of the House of Representatives on the debt talks, House Speaker John Boehner said he was optimistic a deal could be reached. But he called the debt limit increase Obama's problem.

Reinforcing that notion, McConnell unveiled a proposal that would allow Congress to raise the debt ceiling with just a one-third vote. Such a vote would allow the ceiling to be raised with the support of only Democrats, allowing Republicans to wash their hands of the politically toxic issue.

New York Mayor Michael Bloomberg, mentioned among possible successors to Geithner, also weighed in on the debate, saying a default would damage the U.S. credibility around the world.

"America's good name and credit are just too important to be held hostage to Washington gridlock, and I hope that in the end cooler heads will prevail and an agreement will be reached quickly," he said in a statement.

© 2014 Thomson/Reuters. All rights reserved.

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