05/12/2011 08:32 am ET | Updated Jul 12, 2011

John Boehner, GOP Seek Leverage In Talks Over Raising Debt Ceiling

WASHINGTON -- It was a tough-talking House Speaker John Boehner who warned Wall Street this week that Congress won't raise the government's debt ceiling without massive spending cuts that most Democrats oppose.

The swagger struck some as odd. The Ohio Republican, after all, has said failure to increase the borrowing limit this summer would trigger a financial disaster for the United States and the world.

But allies say Boehner had multiple motivations for insisting on trillions of dollars in spending cuts, and no tax increases, as the price for rounding up enough votes to allow more borrowing and prevent the country from defaulting on its debt.

For one thing, public opposition has forced Republicans to de-emphasize their proposals to convert Medicare to a less costly voucher program. A more adamant stand on spending cuts could help compensate for that setback, according to members of both parties.

Experts warn that a default would be an unprecedented event that could cause economic chaos, shaking global confidence in the U.S. government and forcing it to pay higher interest rates when it borrows money. Nevertheless, polls show that Americans strongly oppose increasing the debt ceiling. Sixty-three percent of those surveyed in a CBS News poll in April were against raising the limit.

Reuters reported earlier this week:

A top Federal Reserve official on Monday warned that Congress was playing with fire by not raising the country's legal borrowing limit in a timely fashion.

Richmond Fed President Jeffrey Lacker echoed Fed Chairman Ben Bernanke's worries that a failure to do so before the last possible date of August 2 could have catastrophic consequences.

"I do share the chairman's concern that going up to the edge and playing chicken on the debt ceiling is not a wise strategy," Lacker told Reuters in an interview.

During Congress' recent two-week recess, angry constituents warned scores of GOP House members not to increase the borrowing limit.

"What they heard was, 'Don't raise the debt ceiling!'" said Rep. Jeff Flake, R-Ariz.

Flake, who is running for the Senate, said his fellow Republicans were a bit tentative this spring in demanding deep spending cuts when Congress voted on a package to keep the government running through the fiscal year that ends Sept. 30. Had the government shut down, he said, public resentment "probably would have fallen on us," just as it fell mainly on House Republicans in the shutdowns of 1995-96.

But Flake argues that the more complex issues surrounding the nation's ability to borrow money and repay its loans fall more heavily on the president, the government's chief executive.

"This is more the White House," he said, and that gives Republicans leverage in negotiations.

And so an emboldened Boehner told the Economic Club of New York on Monday: "Without significant spending cuts and reforms to reduce our debt, there will be no debt limit increase."

Adding a new demand, Boehner said the cuts "should be greater than the accompanying increase in debt authority the president is given."

Many took that to mean spending cuts of at least $2 trillion, the amount of new borrowing needed to get the government through the 2012 elections. Boehner's staff, however, said the speaker deliberately avoided giving a number. And they declined to say whether Boehner envisions a 10-year time frame for the savings, or something else.

The Obama administration suggested Boehner is merely staking out an early negotiating stance that he knows will not hold when it's time to compromise with the Democratic-controlled Senate and White House.

"It is fine for all participants in this process to restate their starting positions," White House press secretary Jay Carney told reporters Tuesday. He pointedly read a quote from a January Fox News appearance in which Boehner said that defaulting on the federal debt "would be a financial disaster, not only for our country, but for the worldwide economy."

President Barack Obama and Democrats in Congress say they, too, are willing to make deep spending cuts. But they oppose the GOP's refusal to raise taxes even on politically inviting targets, such as millionaires and major oil companies.

"To tell the American people you care about deficit reduction but you are unwilling to do away with tax giveaways for big oil, is not sustainable," said Rep. Chris Van Hollen of Maryland, a top Democratic budget negotiator.

"There was a disappointing lack of seriousness" in Boehner's speech, Van Hollen said in an interview.

Reuters reported on Wednesday:

Moves to tie a reduction in the U.S. deficit to raising the federal government's debt ceiling is "quite insane," the top White House economist said on Wednesday.

"We must address our long-run fiscal challenges," Austan Goolsbee, chairman of the White House Council of Economic Advisers, said in a speech in Chicago. "But to tie this to the debt limit is in my view quite insane."

Boehner's allies say he is playing a strong hand, boosted by Obama's insistence that the debt ceiling be raised to prevent defaults. The New York speech "was a signal to the markets that Republicans are serious about spending cuts and a signal to the White House that this is no slam dunk," said Terry Holt, a Republican lobbyist with close ties to Boehner.

Others, however, see Boehner struggling to avert huge defections from conservative Republicans - some of them tea party advocates. That would force him to seek an embarrassingly large number of Democratic votes, highlighting divisions within the GOP and potentially undermining his leadership.

On a key vote in March to keep the government funded through September, 54 House Republicans abandoned Boehner, and 85 Democrats helped pass the bill.

Boehner's budget priorities were sharply criticized in a letter this week from dozens of professors and officials at the Catholic University of America, where he is to give the commencement address Saturday.

"Your record in support of legislation to address the desperate needs of the poor is among the worst in Congress," the letter said. It cited cuts in Medicare and Medicaid, among other programs, included in a 2012 spending plan recently passed by the GOP-controlled House.

Boehner, who is Catholic, will deliver "a personal, nonpolitical message" that he hopes "will speak to all members of the graduating class, regardless of their backgrounds or affiliations," said his spokesman, Kevin Smith.