Obama Dueling With Boehner Shows Deficit Compromise Not Near
President Barack Obama
Andrew Harrer/Bloomberg
President Barack Obama pauses while speaking in the State Dining Room of the White House on Aug. 8, 2011.
President Barack Obama pauses while speaking in the State Dining Room of the White House on Aug. 8, 2011. Photographer: Andrew Harrer/Bloomberg
Aug. 9 (Bloomberg) -- Gene Sperling, director of President Barack Obama's National Economic Council, talks about the U.S. economy and fiscal policy. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
Aug. 8 (Bloomberg) -- Bill Gross, co-chief investment officer of Pacific Investment Management Co., Marc Faber, publisher of the Gloom, Boom & Doom report, investor Jim Rogers, chairman of Rogers Holdings, Jim Chanos, president and founder of Kynikos Associates, and John Chambers, chairman of Standard & Poor’s sovereign debt committee, talk about S&P;'s decision to cut the U.S.'s long-term debt rating and its implications for financial markets This report also includes comments from Glenn Hubbard, the Columbia Business School dean who led the Council of Economic Advisers under President George W. Bush, Peter Fisher, head of fixed income at BlackRock Inc. and Mark Mobius, executive chairman of Templeton Asset Management's emerging markets group. (Source: Bloomberg)
President Barack Obama and House Republican leaders are showing no signs of backing off their stances on how to cut the federal deficit.
Obama, making his first public comments since Standard & Poor’s downgraded the U.S. credit rating to AA+ from AAA on Aug. 5, said yesterday that “common sense and compromise” should lead to a deficit-reduction plan that includes more tax revenue, which Republicans have rejected, as well as spending cuts.
U.S. House Speaker John Boehner and Majority Leader Eric Cantor responded with statements saying what’s needed are cuts in mandatory spending, such as Social Security and Medicare, to make enough progress on the long-term shortfall. Boehner ruled out what he called “job-destroying tax hikes.”
Both sides sought to reassure global investors while staking out positions for negotiations on the direction of a so- called super committee of lawmakers, which is supposed to come up with at least $1.2 trillion in deficit reductions beyond the more than $900 billion that Republicans and Democrats have already agreed to. The panel was set up under a law that raised the nation’s debt ceiling, and if it fails, a trigger mechanism would kick in to slash spending equally in defense and domestic programs.
Stocks Rise
After falling yesterday the most since December 2008, U.S. stocks staged the biggest rally of the year today. The Standard & Poor’s 500 Index surged 2.7 percent to 1,149.44 at 12:15 p.m. in New York for its biggest gain since September.
The benchmark lost 6.7 percent yesterday, the first day of trading since the S&P’s action, wiping out $1 trillion on concern the economy will keep slowing.
Treasuries fell today amid speculation the Federal Reserve may signal plans to safeguard the recovery. The drop in Treasuries, the benchmarks for the $34 trillion U.S. debt market that is more than twice the value of American equities, sent the 10-year yield up seven basis points to 2.39 percent.
Obama yesterday sought to temper public concern about market volatility and the credit-ratings drop, citing the productivity of U.S. workers, the strength of the country’s universities and the nation’s history of entrepreneurship and innovation.
“Markets will rise and fall, but this is the United States of America,” he said. “No matter what some agency may say, we’ve always been and always will be a AAA country.”
‘Sense of Urgency’
Still he said, the S&P action should create “a renewed sense of urgency” for members of both parties to come up with a plan for bringing the government budget under control and shrinking deficits.
Obama vowed to offer his own recommendations in the “coming weeks.” He also reiterated his stance that any solution must include “tax reform that will ask those who can afford it to pay their fair share, and modest adjustments to health-care programs like Medicare.”
Gene Sperling, director of Obama’s National Economic Council, told Bloomberg Television today that without compromise from both parties “there’s going to be real economic consequences.”
“The best signal we can have to the people, to markets, is that we are willing to take aggressive bipartisan action” on short-term job growth and long-term debt measures, he said.
Cantor, of Virginia, said compromising on raising taxes in return for modest changes in entitlement programs is “a trade we simply cannot afford to make.”
‘Pressure to Compromise’
As a result of S&P’s analysis of the U.S. budget position, Republicans will come under “pressure to compromise on tax increases,” Cantor wrote in a memo to House colleagues that was released by his office. “We will be told that there is no other way forward. I respectfully disagree.”
While welcoming Obama’s promise to lay out specific reforms for entitlement programs, Ohio’s Boehner said raising taxes is “simply the wrong approach.” Lawmakers must focus on cutting spending, he said.
The debt-ceiling deal Obama struck with House Republicans last week cuts $917 billion from spending over the next decade. The super-committee -- the two top Republicans and Democrats in the House and Senate each will name three members by Aug. 16 -- will try to come up with at least an additional $1.2 trillion in deficit reduction.
Falling Short
In downgrading U.S. debt, S&P said in a statement that the plan “falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.”
Obama and the two Republican leaders agreed that the focus of the White House and Congress should be on generating greater economic growth, even as their prescriptions differed.
“The challenges go beyond the stock market,” Obama told a crowd of about 140 donors last night at a fundraiser in Washington. “Corporate profits have been up. The credit markets have stabilized but what’s absolutely true even before these last couple days in the stock market is that recovery wasn’t happening fast enough.”
Sperling said Republicans must “at a minimum” agree to extend the temporary payroll tax cut for workers through 2012 to aid growth now.
Boehner said the answer is to provide “economic certainty and creating an environment in which businesses can invest and jobs can flourish.”
Regulation Rollback
Cantor said House Republican leaders are preparing a package of legislation to be voted on beginning in September that would “reduce or eliminate regulatory barriers to job creation.”
Americans “want to see less government -- not more taxes,” Cantor said.
S&P’s downgrade decision was at odds with the other two main ratings companies, Moody’s Investors Service and Fitch Ratings. Both affirmed their AAA grades on U.S. debt on Aug. 2, when Obama signed an increase in the U.S. debt ceiling and plan to trim the nation’s deficit.
The new rating is the second-highest and puts the U.S. on the same level as Belgium and New Zealand, and above Japan and China. Under S&P’s definitions, debt rated AA is barely different from AAA securities and shows that a borrower’s ability to “meet its financial commitment on the obligation is very strong.”
To contact the reporter on this story: Margaret Talev in Washington at mtalev@bloomberg.net
To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net
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