The Wall Street Journal
By: Damian Paletta & Carol E. Lee
April 19, 2011
Confident Messages Flow in Interviews, Appearances Following S&P Warning on Downgrading Government-Debt Rating.
President Barack Obama and Treasury Secretary Timothy Geithner expressed confidence that Washington would solve its budget problems, seeking to tamp down concern over a credit-rating report that questioned the country's long-term fiscal health.
Their efforts came after Standard & Poor's for the first time lowered its outlook on U.S. government debt from "stable" to "negative." The firm shook Wall Street and Washington Monday when it warned it could downgrade the government's top-notch AAA debt rating if the White House and Congress can't reach a credible plan to rein in federal budget deficits by 2013.
Mr. Obama expressed confidence that lawmakers will strike a deal. "Both Democrats and Republicans agree that we should reduce the deficit," Mr. Obama said Tuesday at Northern Virginia Community College in Annandale, Va., without mentioning the S&P report. "And when folks in Washington agree on anything, that's a good sign. So the debate isn't about whether we reduce our deficit. The debate is about how we reduce our deficit."
The president continued, saying that while reaching a final agreement won't be easy, he believes it will get done. "There are going to be some fierce disagreements...But I'm optimistic. I'm hopeful. Both sides have come together before. I believe we can do it again," he said.
However, the gulf between the two parties--which S&P cited as a cause for their concerns--was evident in their remarks about the other side's budget plan.
House Speaker John Boehner (R., Ohio) said in a statement, "The House has already passed a responsible budget that cuts spending and preserves critical health and retirement programs ... The President, on the other hand, utterly ignored the recommendations of his last deficit commission and submitted a budget that would add more than $9 trillion to the debt and raise taxes on job creators. The American people understand we can't keep spending money we don't have. The only ones who don't are the Democrats running Washington."
Mr. Obama said the Republican plan would fund tax cuts for the wealthy "by asking seniors to pay thousands of dollars more for their health care, or cutting children out of Head Start, or doing away with health insurance for millions of Americans on Medicaid--seniors in nursing homes, or poor children, or middle-class families who may have a disabled child, an autistic child."
Meantime, Mr. Geithner said in several television interviews there was "no risk" the U.S. government would lose its top-notch bond rating. He also said Congress would move to raise the federal borrowing limit soon. He has warned that a failure to do so would shake financial markets and could trigger a recession.
The U.S. government is now within weeks of hitting the $14.294 trillion borrowing limit set by Congress, and Mr. Geithner has launched a public and private campaign to urge lawmakers to raise it as soon as possible. Treasury officials have projected that if Congress doesn't act, the U.S. could default on its debt after July 8.
Mr. Geithner didn't specify how much the cap would have to be raised, but told the Fox Business Network that raising it by $300 billion or $400 billion would be a "ridiculous way to run the country" because Congress would have to revisit the issue in a few months. Some analysts say lawmakers would have to lift the debt ceiling by close to $2 trillion if they want to avoid voting on it again before the 2012 presidential election.
Many Republicans--and some Democrats--have said they will only raise the debt ceiling if progress is made to reduce the deficit in coming years. The deficit this year is expected to be between $1.5 trillion and $1.65 trillion. Mr. Geithner warned lawmakers not to delay the debt-ceiling vote and "take us too far into June" without raising the limit, which could cause markets to begin to shudder.
Stocks rebounded Tuesday, recovering some of their losses from the previous day. The Dow Jones Industrial Average rose 0.53%, or 65.16 points. Treasuries rallied, with the benchmark 10-year Treasury note rising 4/32 in price terms to yield 3.356%, the lowest since March 24.
Since Mr. Obama proposed $4 trillion in deficit-reduction measures last week, his administration has launched a communications offensive to build support for the plan. Mr. Geithner sat for five television interviews in three days. Republicans have advanced their own plan, which would reduce projected deficits by cutting spending and overhauling Medicare and Medicaid.
Mr. Obama has called for lawmakers to craft a bipartisan deal by July for shrinking the deficit over time, a key step toward winning enough votes to raise the debt ceiling. But the effort is off to a rocky start.
The president had initially proposed a 16-member group, working with Vice President Joe Biden, to negotiate an agreement. But congressional leaders balked and on Tuesday designated just six lawmakers to participate.
Mr. Biden plans to convene the group May 5. Congressional leaders said the participants would be Sens. Max Baucus (D., Mont.), Daniel Inouye (D., Hawaii), and Jon Kyl (R., Ariz.) and Reps. Chris Van Hollen (D., Md.), James Clyburn (D., S.C.) and Eric Cantor (R,. Va.).
Even as he agreed to be part of it, Rep. Eric Cantor, the no. 2 Republican in the House, expressed reservations about the group.
"I remain skeptical that the administration will take this effort seriously, especially after it all but ignored its previous debt commission and President Obama had to be dragged kicking and screaming to consider minimal spending cuts for the rest of this fiscal year," Mr. Cantor said in a statement.
Write to Damian Paletta at email@example.com