Failure to Raise U.S. Debt Ceiling Would Be Dangerous, Top Obama Aide Says

February 3, 2011

Bloomberg

Julianna Goldman

William Daley, President Barack Obama’s chief of staff, said a failure by Congress to raise the legal limit on U.S. borrowing could be “very dangerous” and have “enormous potential negative impacts on the markets.”

While Democrats and Republicans must work together to deal with the nation’s ballooning debt, Daley said a rejection of a debt-ceiling increase would cause “devastation.” He said leaders of both parties have acknowledged danger, especially as certain parts of the world, including Europe, are still recovering from a global recession.

“To go through a traumatic sort of vote would have enormous potential negative impacts on the markets,” Daley said today at the Bloomberg Breakfast in Washington.

The government will hit the $14.29 trillion debt limit by the end of May, a little later than initially projected because tax revenues have been more robust than expected, the Treasury Department said in a statement yesterday.

Lawmakers are headed for a showdown over the debt-limit vote, with Republicans and some Democrats demanding cuts in government spending as the price of approving an increase.

House Speaker John Boehner said Jan. 31 that while a U.S. default would be a “financial disaster,” the Obama administration needs to cut spending if it seeks an increase in the debt ceiling.

‘Split Control’

“Split control of Congress is apt to lead to a longer- than-usual debate over increasing the statutory debt limit, and could result in at least one failed attempt at an increase before the limit is raised,” Goldman Sachs said this week in a research note. The debt stood at $14.003 trillion on Jan. 31.

“We’re going to make the strong case that we ought to just deal with the debt limit, at the same time we’re all saying we’ve got to do something about this deficit,” Daley said. “But to sort of play this typical Washington game of threatening and trying to leverage off the debt would be very dangerous for the markets.”

Daley, a former executive at JPMorgan Chase & Co., said President Barack Obama’s proposal to overhaul the corporate tax code has been well received by the business community.

“There’s a general belief” that greater simplification and lower rates would make U.S. companies “more competitive internationally” and help them create more jobs in the U.S., Daley said.

During his Jan. 25 State of Union address, Obama said he would cut corporate tax rates if loopholes and breaks also could be eliminated so that an overhaul wouldn’t add to the deficit.

Treasury Secretary Timothy Geithner plans to meet today with Senate Majority Leader Harry Reid of Nevada, Budget Committee Chairman Kent Conrad of North Dakota and Finance Committee Chairman Max Baucus of Montana, all Democrats, to discuss priorities for the current Congress, the Treasury Department said.

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