Debt Ceiling: White House Wants Business To Help Pressure Republicans To Raise Limit

By Rachelle Younglai

WASHINGTON -- Worried that Congress will not act in time to raise the country's borrowing cap, the Obama administration is enlisting the business community to persuade lawmakers that a default will have dire consequences.

Outgoing White House economic adviser Austan Goolsbee is set to talk to a slew of business representatives this week, according to a person with knowledge of the meeting.

The meeting will mark the second time in less than a month that Goolsbee has tried to get businesses to ratchet up the pressure on Congress to raise the nation's $14.3 trillion debt limit before August 2, when the Treasury says it will no longer be able to pay the government's bills.

"The White House wants the business community to pull its weight," said one person familiar with the administration's thinking who was on Goolsbee's initial conference call on the subject.

There is a "profound misperception" among some lawmakers that a temporary default will not imperil the fragile economy, said the person, who was not authorized to speak on behalf of the administration.

Calls to the White House seeking comment on the effort were not immediately returned.

The flash point for the White House came when famed investor Stanley Druckenmiller said he could tolerate a brief debt default if it forced lawmakers to reach a deal to slash future budget gaps. This year's deficit is projected to hit $1.4 trillion.

The comments from Druckenmiller, a former hedge fund manager and longtime ally of George Soros, appeared to lend credibility to the belief of some Republicans that the administration was fear mongering about the consequences if Congress failed to move quickly to raise the limit on how much the government can borrow.

Less than a week after Druckenmiller told the Wall Street Journal that a default would not be the "catastrophic" event administration officials claimed, the White House called on some of its Democratic friends in corporate America.

"It really scared the administration that a brand name was saying that (default) was not a big deal," said a financial services industry source who also was on the Goolsbee call in May.

During the call with about 60-70 executives from large and small firms across the country from financial services to manufacturing, Goolsbee likened the debt talks and potential market fallout to a smoldering fire pit in Iran and said one could only get so close before his clothes would catch fire.

The message from Goolsbee, according to the participant, was, "We know markets will react negatively, but don't know how close we can get before they start reacting negatively."

The White House economic adviser cited a study by centrist think tank Third Way that said default would drive the country into a second recession -- a statement Treasury Secretary Timothy Geithner would later make in a letter to Congress.

So far, U.S. markets have shown little concern over the budget stalement in Washington with investors apparently confident lawmakers will lift the debt ceiling in time. The yield on the benchmark 10-year Treasury note hovered around 3 percent on Tuesday, indicating strong demand.

Still, the United States' largest foreign creditor, China, warned that U.S. lawmakers contemplating a technical default, or a delay in interest payments, are "playing with fire".

UNCONVINCED

Conservative Republicans, who helped shift control of the House of Representatives to their party in elections in November, remain unconvinced that there will be terrible fallout if the August 2 deadline is missed.

"A lot of my supporters, a lot of my friends... are making sure that I know that I can't raise the debt ceiling until there is a good plan moving forward to (curb spending,)" said Representative Stephen Fincher of Tennessee.

Fellow Republican Mike Pompeo said there were bankers in his district in Kansas who were watching the negotiations closely and wanted to make sure Congress "got it right," adding that he was more convinced than ever that raising the debt limit without big spending cuts would be wrong.

Publicly, President Barack Obama and his economic team have been warning lawmakers for months that missing payments on any of the government's obligations could push interest rates sharply higher and throw the economy back into recession. They say Republicans would shoulder the blame if that happened.

Lobbying groups for powerful companies such as JPMorgan Chase, Bank of America and Caterpillar Inc, have tried with little success to persuade lawmakers -- and the public -- that a debt default would be unthinkable.

Republican Representative Nan Hayworth of New York said the majority of her constituents have told her that they would prefer that the debt ceiling not be raised.

"I have assured them that it will be accompanied by substantial measures to stop adding to the debt as fast as possible," she said.

(Additional reporting by Laura MacInnis)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[oilfield]

12:32 AM on 06/16/2011

for the folks saying that our money would be worthless, ponder this........it would be the best stimulus program ever to have a default under this scenario.....everyone in america could secure the worthless notes that they owe to banks and clean the slate....every consumer and business in america could start over and run up all the debt again.

[globalguy]

08:32 PM on 06/15/2011

Global investors (ie. the folks buying US Treasuries) should not pay a premium for our debt and subzidize us. They are smart and sick of funding our excesses. Our credit rating should be down graded and we need to face the realities of what that means. Prolonging the problem doesn't help us (ref: mortgage mess).

[Peter Combs]

04:35 PM on 06/15/2011

Its interesting, Soros was a big supporter of Obama, he now seems to working at odds with the White House...

Obama needs to get in front of the American people and simply say in SPECIFIC terms what he wants, hes got to stop the vague platitudes.

He needs to say: We are going broke PERIOD, we need to increase taxes on Corporations by eliminating loopholes and then ACTUALLY name them, he needs to reduce taxes on people earning under 200,000 a year and increase them on on a graduated scale for incomes over $200,000 a year.

He also needs to put firmly on the table a discussion about cutting the military budgets, not start a study, form a committee...but tell the Pentagon WE are cutting your budget by 30% over the next 5years, you can decide how its done..but the checks are getting smaller..

Obama is the President this is HIS job, not the Speakers of either houses, not the Tea Party..its 100% on him.

If he cannot start leading with SPECIFICS, and stick to them, the unemployment rate will hit 11%, he will not be re-elected and will be a "Lame Duck" by Christmas...

THis guy has to get off his podium, drop the long winded speeches to nowhere and start acting like a leader of a nation and not some panty waste.

[VeriCarreri]

10:46 AM on 06/16/2011

Obama has ZERO experiance in any of these arenas. Community organizers organize committee's by their very nature; he is doing what he knows how to do...I am surprised those that voted for him expect him to do anything else.

[Liz Pierce]

04:02 PM on 06/15/2011

The Four Big Lies from both parties in congress:
Big Lie 1
"The current financial crisis was inherited."

Big Lie 2
"There's no way to cut enough spending. So we must raise the debt ceiling."

Big Lie 3
"We can haggle for some really great deals now that we have them over a barrel."

Big Lie 4
"You just don't understand all of the complicated details. Let us handle it. We're smart."

[pb31]

05:17 PM on 06/15/2011

OK, which United States obligations do you want to go unpaid? United States bonds and notes backed by "the full faith and credit" of the United States? That would raise interest rates significantly on all U.S. debt going forward, greatly increasing the deficit. It would also raise interest rates for businesses and consumers, since many of their interest rates are tied to the T-bill rates. It would also lower the value of U.S. currency, which is also a type of debt backed by the "full faith and credit of the U.S."

Maybe you want to default on payments to contractors with the U.S.? That would destroy our desirability as a contractor, meaning the U.S. would pay a risk premium. Government employees denied payment for the work they have done? Social security recipients? Medicare providers? Or perhaps you prefer just to fire people: massive firings would hurt our economy seriously at a time we are trying to increase demand and create jobs. When Republicans were suggesting $61 million in cuts, Goldman Sachs (not exactly a liberal group) said that cuts of this size would take a full percentage point off the rate of growth in the GDP. This would mean lower revenues for the U.S. The English austerity plan has caused a shrinking GDP for England and increased deficits.

When people who have been studying these issues all their lives say it would be serious to default, believe them. Would you second guess your doctor about the seriousness of a cancer?

[mistykane]

06:17 PM on 06/15/2011

Default would only occur if the interest on the debt goes unpaid. That's not going to happen. Other things would have to be cut, but not that.
In 2006, Obama and ~37 other Democrats voted not to raise the debt limit. Now the shoe is on the other foot, but what seems so odd is if Obama is so desperate to raise the debt ceiling why he's so stubborn about working with Republicans. They already voted on a 'clean' debt ceiling bill and even democrats voted against it.

[garynoel]

03:58 PM on 06/15/2011

I am living on a farm with water wells and I have gas and diesel stored. I have a freezer full of food. I have some cash in a drawer. I won't feel any effects of a government default for quite a while. Goldman Sachs will feel the effects within NANOSECONDS of the US government default.

Who cares more about a default, you and me or Wall Street??? No cuts in Medicare and a restoration of the taxes Bush cut or NO DEBT INCREASE!!!!!!!!!!!!!!!!!!

[pb31]

05:22 PM on 06/15/2011

If the U.S. defaulted on its debt backed by its "full faith and credit", the value of its currency would take a nose dive. Technically, U.S. currency is part of the debt backed by full faith and credit of the U.S. You'll need more cash in the drawer.

[garynoel]

06:27 PM on 06/15/2011

The truth is that money is backed by the full faith and credit of the users. I am willing to gamble that individuals and businesses are going to be far more likely to take a $20 bill than a credit card or check. Goods and services are still going to be exchanged, it is a question of what the medium of exchange is.

I personally don't have full faith and credit in the banks, especially Goldman Sachs. After all, the government doen't create the money, this is left to the Fed and then the fortunate few who can access that money and then legally create more "money" through leverage and debt. (See the article by Stephen Zarlanga to understand how that works.)

Of course, if you were one of those who worked for a corporation whose bosses and owners promised to take care of you after you completed you 30 years, maybe you could take corporate script. Maybe you could exchange that for goods and services. Depends on whether others would have faith in that credit.

Then again, maybe marijuana would become the accepted medium of exchange. After all the Feds would no longer be able to fight their Drug War, and the pot smokers have had decades to establish networks of largely trustworthy associates. No need to launder money any more. Sort of like what the founding fathers had to work with.

[oilfield]

12:30 AM on 06/16/2011

us consumer debt makes money valuable and for the most part stable in our country.....but not against other currencies and commodities, hence 100.00 a barrel oil.

[MarkVA71]

06:36 PM on 06/15/2011

If we default, the cash in your drawer won't be worth the paper it's printed on.

[oilfield]

12:30 AM on 06/16/2011

wrong....that might be true if every american wasnt in debt.....

[Syllogizer]

02:30 PM on 06/15/2011

Of course the WH wants this. It is the right thing to do. I am amazed the Wall Street buddies of all those Congress critters haven't done it already. They all know what these idiot Tea Party freshmen don't get: that playing with default is incredibly bad for the whole economy, threatening even the incomes of the super rich.

[BuckJ]

02:46 PM on 06/15/2011

That's the thing. The Republicans don't actually need to placate the Tea Party members on this. Whatever Tea Party Republicans vote against raising the debt ceiling will be more than made up for by Democratic votes.

This is completely about not wanting to alienate the Tea Party in general by trying to get something in exchange. But it is not actually necessary to court the votes of those members to pass a bill.

[sarabono]

02:24 PM on 06/15/2011

If the Senate had a Budget, this Debt Celling issue would never have come up. Without a Budget to consider and vote upon, the Debt Ceiling becomes the only vehicle to control what is spent.

We are now 743 days without a Budget being passed for the Federal Government.

[Syllogizer]

02:42 PM on 06/15/2011

But why are you blaming the Senate for this? Don't you know that spending bills have to originate in the House? More important: place the blame where it really belongs: on the Republicunning, who are deliberately playing with fire hoping to blame the conflagration on the President.

[mistykane]

06:22 PM on 06/15/2011

It's up to the president to present a budget. Obama did present one for 2012, but he couldn't bring himself to make a fiscally responsible one. It failed in the Senate 97 to 0!!

[mukarrib]

01:41 PM on 06/15/2011

The Republican plan is using the default risk to take down Medicare and SS. Once those are decimated and privatized it will be business as usual in Washington as earmarks and special favors for districts and gathering of taxes to enrich politicians and business leaders will return. Make no mistake about it, once Medicare and SS are private, we'll suddenly have all this money to do these wonderful things.

[Dahveed]

01:38 PM on 06/15/2011

Print more money, what the hell. I am tellin' you, a hard rain's gonna fall.

[loanshark]

01:47 PM on 06/15/2011

...a hard rain indeed..

[citizen of the universe]

01:38 PM on 06/15/2011

President Obama, please stop trying to save the American people and Republicans from themselves. Let all of these people who are saying "don't raise the debt ceiling" get their wish. Sure the rest of us who know better will suffer and China will call in their debt, but I'm at the point where people really need to see/feel the repercussions of their actions. "Let the chips fall where they may," you can't reason with stupid.

[Syllogizer]

02:32 PM on 06/15/2011

"you can't reason with stupid", you say? Ah, but that is exactly why even if we let that disaster scenario unfold, they won't make the connection between the repercussions and the actions. They will find a way to place the blame somewhere else.

[DXM]

03:43 PM on 06/15/2011

I have to agree with you. While we will all suffer from the economic calamity that follows a default, it will be the red states (which tend to get more Federal dollars than they pay) and the big moneyed interests (i.e. big corporations, the wealthy and Wall St.) that will suffer much more than average. It's time that the supporters of the GOP over the past generation pay the price for their selfishness and willful ignorance.

[MovieGuy2010]

01:24 PM on 06/15/2011

"The flash point for the White House came when famed investor Stanley Druckenmiller said he could tolerate a brief debt default if it forced lawmakers to reach a deal to slash future budget gaps. This year's deficit is projected to hit $1.4 trillion."

Yeah, and he could also make a truck load of money, hedging US currency as the Full Faith and Credit of the US dives off a cliff and the stock market drops 500 points in one day?

Funny, every notice how the RICH always want to take risks, as long as they are protected in case of a real cataclysm especially one THEY cause?

Wonder if this clown will bail out my 401K if the debt default crashes the market?

[loanshark]

01:30 PM on 06/15/2011

You affraid your 401K might end up in George Soros pocket?

[MovieGuy2010]

02:34 PM on 06/15/2011

GEORGE SOROS!

DRINK!

Care to mention ACORN and UNCONSTITUTIONAL MANDATE and triple down on the talking points?

[loanshark]

01:07 PM on 06/15/2011

NO! Just watching the Demwits and some pubwits on C-SPAN shows us they have no intention of truly reducing the deficit unless they are facing dire consequences.

Borrowing Trillions more and then passing the note to our children and grandchildren is not the thing to do.

[MovieGuy2010]

01:27 PM on 06/15/2011

So, did you complain when Reagan tripled the deficit?

Did you complain when Bush spent the Clinton Surplus and funded TWO uneccesary wars OFF the books, borrowing that money from the Chinese?

Every notice how the deficit is ONLY an issue for Repubs when there is a Democrat in the WH?

[GoodbyeRubyTuesday]

02:18 PM on 06/15/2011

And an issue only since the 2010 elections.

[vobox3343]

01:30 PM on 06/15/2011

Last report I saw suggests that the Spanish speaking will be the majority here in America. Still concerned that your grandchildren and their children will be paying? Quite frankly, I could care what overly spoiled and self-righteous kids will have to pay. It appears that it will have been God's will.

[loanshark]

01:42 PM on 06/15/2011

I speak some Spanish, and so do some of my kids....I guess I'm not sure what your saying exactly. If your saying that America will get what they deserve then your making a point of Truth. It is precisly that point of Truth that many of us are trying to change. Are you saying that you don't care what happens to our Nation as long as you get yours? Well, if you are, then you are one of those you refer to as "overly spoiled", "self righteous".

I have long used the phrase that, "we have the government that we deserve", and that is because we, have let them corrupt our government and then stay in office.

[project cooper]

12:45 PM on 06/15/2011

is he asking the same business community that he attacked everyday when he was running for office?

[JudgeCCrater]

12:51 PM on 06/15/2011

First off, it's the US Chamber of Commerce and secondly they attacked him everyday and twice on weekends. And thirdly the Chamber doesn't speak for the entire business community, fortunately.

[Reddoggie]

01:13 PM on 06/15/2011

Right Judy, Obama never calls out anyone, right

[project cooper]

01:21 PM on 06/15/2011

So that was not Obama who was attacking the business comm., man it sure looked & sounded like him. I guess all the attacks didn't work, now he has to make nice with them to try & get them to start the economy. Something we all knew was the way to get the economy going in the right direction. But then, attacking is the only thing he knows how to do.

[Jack Daniels Esq]

12:41 PM on 06/15/2011

Impeach Obama - its all on his watch - he has done zilch - he is the problem, not the cure

[JudgeCCrater]

12:52 PM on 06/15/2011

So Republicans are the 'cure?' Do tell.

[Rodger leMonde]

01:24 PM on 06/15/2011

Everyone note that Jack claims Obama has done zilch. Be certain to remind him when he rants about how bad the things he has done are.

[Jack Daniels Esq]

01:34 PM on 06/15/2011

Your Kindergarten rant is hardly worthy of an intelligent rebuttal

[joecan1]

12:40 PM on 06/15/2011

The multi-billioaires have already stuffed their money into their mattresses. Their only concern is the failure of the working class in this country. If anyone really thinks that the Republican really want to see a strong economy they haven't been paying attention. They will either destroy the working class with spending cuts or failing to raise the debt ceiling. Either way makes no difference to them as long as we fail.