Washington: Republicans offered a short term lift to the US debt ceiling Thursday, sending stock prices soaring on signs that a bitter political impasse could end short of a historic default.
But the Republican offer of a six-week extension to US borrowing authority would not end the partial shutdown of the US government until President Barack Obama enters talks on a long-term budget deal — a step the White House has so far refused to take.
“Listen, it’s time for leadership,” Republican House Speaker John Boehner said after meeting his restive caucus ahead of a separate meeting with his fellow party leaders with Obama at the White House.
“What we have discussed as a conference is a temporary extension of the debt ceiling — in exchange for a real commitment by this president and the Senate majority leader to sit down and talk about the pressing problems that are facing all the American people,” Boehner said.
If the government’s $16.7 trillion statutory borrowing authority is not lifted by October 17, the Treasury will run out of money to pay its obligations and the country could fall into default, sending shockwaves through the global economy.
If Obama signs a short-term debt increase, without opening the government, he would be left to haggle with Republicans on the terms of a return to work of hundreds of thousands of federal workers who have been sent home without pay checks.
There was no immediate reaction to Boehner’s offer from the White House.
But before he spoke, a White House official called on House Republicans to pass a bill to both reopen the government and raise the debt ceiling without demanding ideological conditions.
“Congress needs to pass a clean debt limit increase and a funding bill to reopen the government,” the official said.
Once both tasks were accomplished, Obama would agree to talk to Republicans about a longer term budget and fiscal deal, the official said.
News of a possible deal sparked optimism on Wall Street, with all three major equity indices trading higher.
By midday, the Dow Jones Industrial Average was up 1.6 percent, and the gains on the Nasdaq topped two percent.
Earlier, Treasury Secretary Jack Lew warned a US default would be “deeply damaging” to financial markets and cause economic chaos.
“If Congress fails to meet its responsibility, it could be deeply damaging to the financial markets, the ongoing economic recovery, and the jobs and savings of millions of Americans,” Lew told the Senate Finance Committee.
Failure to agree on a budget led to the first government shutdown in 17 years on October 1, the beginning of fiscal year 2014.
Now the nation is careening toward another potential hammer blow, and Lew warned it would be a “grave mistake” if the US Treasury is not provided with new borrowing authority to pay its bills.
Senate Finance Committee chairman Max Baucus framed the crisis in near-apocalyptic terms.
“While the government shutdown has been disruptive, a default would be a financial heart attack,” he told the hearing.
“It would have widespread, long-term economic consequences.”
Other countries were closely watching the unfolding crisis, fearful of reverberations in their economies.
Premier Li Keqiang of China, the largest foreign holder of US government debt, reiterated his country’s “concern about Washington’s debt ceiling problem” when he spoke with US Secretary of State John Kerry at an Asian summit Thursday in Brunei, according to China’s official Xinhua news agency.
The state-run China Daily newspaper in Beijing blasted “the astonishing failure” of the US Congress.
“It is pitiful that the US is now putting the fragile world recovery under renewed threat with its mind-boggling political infighting,” it said.
Lew said the “potentially catastrophic impacts of default” included credit market disruptions, a significant loss in the value of the dollar, elevated US interest rates, negative spillover effects to the global economy, “and real risk of a financial crisis and recession that could echo the events of 2008 or worse.”
Social Security and Medicare payments could be frozen, contracts with private suppliers could dry up, and mortgage costs could soar, he said.
But many Republicans are insisting that any deal be coupled with measures to rein in spending.
“We need to avoid a debt limit crisis. But we also need to avoid a debt crisis,” said Republican Senator Rob Portman.
Senator Mike Enzi dismissed the idea that “the sky is falling.”
But Democrats warned that failure to act would send devastating waves through the US economy.
“Dominoes are going to fall fast and hard,” Senator Ron Wyden said.