Obama pulls out stops in warning on debt default

Reuters

* Default would be "insane," Obama says

* U.S. creditworthiness at stake, president says

* Need to "put a stop to this"

By Mark Felsenthal

WASHINGTON, Oct 8 (Reuters) - Evoking financial chaos andeconomic hardship, President Barack Obama on Tuesday warnedAmericans they would be hurt if Congress lets the United Statesdefault on its debt, and cautioned against listening to anyonesaying the effects are exaggerated.

At a hastily scheduled news conference at the White House,Obama gave his strongest warning to date about the risks ifCongress fails to raise the U.S. debt ceiling before an Oct. 17deadline.

"A decision to actually go through with it, to actuallypermit default - according to many CEOs and economists - wouldbe, and I'm quoting here, 'Insane, catastrophic, chaos.' Theseare some of the more polite words," he said.

"Warren Buffet likened default to a nuclear bomb, a weapontoo horrible to use," the president said, citing the widelyrespected businessman.

Obama, criticized by Republicans for his unwillingness tonegotiate over the debt ceiling, also said that beyond theimmediate harm, there were larger issues at stake for futurepresidents and for democracy.

"This is not just for me. It's also for my successors inoffice, whatever party they're from. They shouldn't have to paya ransom either for Congress doing its basic job. We gotta put astop to it," he said.

Republicans, keen to use their leverage to force Obama tocut spending or curtail the reach of the Affordable Care Acthealth law, have suggested that the ill effects of a debtdefault are overstated. Some lawmakers have proposed plans forprioritizing U.S. debt payments, paying some creditors first andputting off other payments if cash flow into government cofferswas insufficient.

Speaking to a global audience through the media on Tuesday,the president sought to shoot down the notion that the impact ofa debt default would be nothing more than a glancing blow.

"This is the creditworthiness of the United States thatwe're talking about," he said. "This is our word. This is ourgood name. This is real."

Obama acknowledged that he was at a disadvantage in thepublic relations battle because asking lawmakers to raise thedebt ceiling "is a lousy name" that voters can come to equatewith authorizing more debt.

"It is not raising our debt," he said. "This does not add adime to our debt."

'RISK OF A VERY DEEP RECESSION'

He went on to warn against listening to "people out therewho don't believe that default is a real thing," and painted anunsettling picture of the consequences of debt default.Americans would see their retirement savings and home valuesplunge and interest rates on home mortgages and student loanswould soar, he said.

"And there would be a significant risk of a very deeprecession at a time when we're still climbing our way out of theworst recession in our lifetimes," Obama said.

The president's pitch on Tuesday seemed aimed at gettingAmericans to identify with the bind in which Republicans haveput him, and the nation, by seeking political concessions whileholding out the possibility of a default if he fails to comply.

"You don't get a chance to call your bank and say, 'I'm notgoing to pay my mortgage this month unless you throw in a newcar and an Xbox.'" he said.

The U.S. government is in the eighth day of a partialshutdown because House of Representatives Republicans wanted tomake delaying or defunding Obama's signature healthcare law acondition for funding government operations, which the presidentand his fellow Democrats in the Senate refused to accept.

With the shutdown dragging on, Obama, who canceled a trip toAsia to focus on the domestic crisis, appeared in public for thethird day in a row to urge congressional Republicans to allowvotes to re-open government and raise the nation's borrowinglimit.

House Speaker John Boehner has said he will not allow a voteon raising the $16.7 trillion debt limit without conditions.

But Obama, stung by down-to-the-wire negotiations overraising the debt limit in 2011 that led to a damaging downgradeof the U.S. credit rating, has refused to bargain this time,saying that maintaining the nation's reputation as a reliabledebtor should not be a concession in political debate.

"I'm not budging when it comes to the full faith and creditof the United States," he repeated on Tuesday.

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