Obama issues debt-ceiling warning; Boehner ‘hopeful’ about start of talks

CNN

WASHINGTON (CNN) — End the government shutdown and raise the debt ceiling — even for a short period — and I’ll negotiate, President Barack Obama said Tuesday while warning Republicans about the harm from the ongoing partial government shut down and possible first-ever U.S. default next week.

At a news conference announced only a few hours earlier, Obama indicated Republicans could essentially set the agenda for negotiations that they demand, but only after Congress passes a short-term spending plan to fund the government and also increases the federal borrowing limit.

“If there’s a way to solve this, it has to include reopening the government and saying America’s not going to default, it’s going to pay our bills,” Obama said. “They can attach some process to that that gives them some certainty that in fact the things they’re concerned about will be topics of negotiation. … If they want to specify all the items that they think need to be a topic of conversation, happy to do it.”

House Speaker John Boehner, the leading GOP voice in the impasse, quickly rejected Obama’s comments as nothing new.

“What the president said today was if there’s unconditional surrender by Republicans, he’ll sit down and talk to us,” Boehner told reporters. “That’s not the way our government works.”

At the same time, Boehner said he was “hopeful” that Republican leaders and top Democrats could soon begin what he calls a “conversation” about spending cuts and entitlement reforms that would accompany steps to end the shutdown and raise the federal debt ceiling.

“There’s going to be a negotiation here,” Boehner said. “We can’t raise the debt ceiling without doing something about what’s driving it to borrow more money and live beyond our means.”

The stalemate involves demands by tea party conservatives to dismantle or defund Obama’s signature health care reforms as part of a short-term spending plan that would reopen the government, as well as Boehner’s insistence on deficit reduction talks in connection with raising the federal debt ceiling.

Obama has refused to negotiate on the shutdown or debt ceiling, calling the need to fund the government and increase its borrowing power constitutional responsibilities that must be free of partisan politics.

House Republicans, however, fear losing their leverage in any talks by giving up those two points without any concessions.

Veteran GOP Sen. John McCain of Arizona, who has opposed the House Republican tactics in the stalemate, questioned Tuesday why there was a need for such recalcitrance.

“We know how it is going to end. Sooner or later the government will resume its functions. Sooner or later we will raise the debt limit,” McCain said, adding: “So why don’t we do this sooner rather than later and why doesn’t the Senate lead?”

On the eighth day of the partial shutdown and nine days before the deadline to increase the debt ceiling or face default, Obama looked directly into the camera at one point and apologized to the American people for the continuing cycle of partisan brinksmanship over budget and deficit issues.

“We’ve got to stop repeating this pattern. I know the American people are tired of it,” the president said, adding: “I apologize you have to go through this stuff every three months, it seems like. And Lord knows, I’m tired of it. But at some point we’ve got to break these habits.”

He provided a stern warning about the consequences to the nation if Congress fails to raise the debt ceiling, saying “every American could see their 401(k)s and home values fall” and the country would see a “very significant risk” of a deep recession.

“We’re not going to pay ransom for” America paying its bills, he told reporters, placing the blame on the crisis squarely on House Republicans. “Let’s lift these threats from our families and our businesses and let’s get down to work.”

Earlier Tuesday, little sign of progress was evident in the impasse over how to end the shutdown that started last week and avoid a default by raising the amount of money that the federal government can borrow before the estimated deadline next week.

Boehner demanded that Obama and Democrats negotiate with Republicans, calling what he labeled their refusal to do so “an untenable position.”

Nothing changed in a morning phone call from Obama to Boehner, both the White House and the speaker’s office agreed.

Boehner spokesman Brendan Buck said Obama reiterated his refusal to include the debt ceiling and a short-term spending plan to end the shutdown in negotiations on broader policy issues.

A White House statement said Obama “is willing to negotiate with Republicans — after the threat of government shutdown and default have been removed — over policies that Republicans think would strengthen the country.”

Obama also urged Boehner to allow a vote in the House on the Senate-passed measure to reopen the federal government, and called for quick action on raising the debt limit, the White House statement said.

In both cases, Obama said the House should pass “clean” proposals that don’t have partisan amendments pushing GOP priorities, according to the statement.

Economists warn that failure to increase the amount the government can borrow to pay its bills would mean a spike in interest rates that would ripple through the U.S. economy, as well as other ramifications.

“If there was a problem lifting the debt ceiling, it could well be what is now a recovery would turn into a recession or even worse,” Olivier Blanchard, an International Monetary Fund economist, said Tuesday.

The shutdown that began when Congress failed to authorize government spending for the new fiscal year that started October 1 entered its second week, while the October 17 deadline to raise the debt ceiling looms ahead for political leaders locked in partisan stalemate.

GOP issues: Deficit reduction, health care reform

Boehner and conservative Republicans want to leverage the situation to wring concessions on deficit reduction and Obama’s signature health care reforms from the White House and Democrats.

So far, the president and Senate Democrats have rejected the GOP efforts, causing the impasse that is escalating public anger against all the parties involved, especially Republicans, according to recent polls.

To keep up pressure on Obama and Democrats, House Republicans will propose a measure to set up negotiations on the debt limit and other fiscal issues, as well as one to guarantee paychecks for essential government workers are issued on time during the shutdown, GOP sources said Tuesday.

Rep. Tom Cole of Oklahoma, a GOP leader in the House, said a negotiating committee with Democrats and Republicans from both parties could pass a short-term extension of the debt ceiling while doing its work.

“I suspect we can work out some mechanism to raise the debt ceiling while negotiations are under way but we’re not going to simply raise it without talking about the deficit,” Cole said. It was unclear if his description would satisfy Obama’s insistence that the debt ceiling increase must be separate from political negotiations.

Democratic Sen. Chuck Schumer of New York called the GOP proposals the latest in a series of “new gimmicks” that avoid the need to reopen the government and raise the debt ceiling before broader negotiations.

“We have a simple plea with them: Let’s open up the government, pay our debts, and then we’ll discuss anything they want in a forum in which they want to discuss it,” Schumer said. “It’s more of the same right now.”

Boehner didn’t mention the GOP proposals at a morning news conference, but he told reporters he wanted “conversation” with Obama and Democrats “to resolve our differences.” Asked about any preconditions for such talks, Boehner said he wasn’t “drawing any lines in the sand.”

In the Senate, Reid could file a proposal as soon as Tuesday to raise the debt ceiling without addressing any deficit reduction issues demanded by Republicans, a Senate Democratic leadership aide told CNN.

Sources told CNN that the Democratic plan would resolve the debt ceiling issue for at least a year, and perhaps through the 2014 congressional elections.

The move would be the first volley in what will be a torturous political struggle in coming days over the federal borrowing limit leading up to next week’s deadline to raise it.

Most Republicans would shy away from a bill that doesn’t specify spending cuts or other policy changes in return for the increased borrowing authority.

Democrats are hopeful some Republicans would vote across the aisle to prevent the potentially catastrophic economic repercussions of a default.

Obama: No talks under threats

If Senate Republicans require all the time-consuming steps available to them to delay action on the debt ceiling measure, a final vote might not take place until two days before the deadline for raising the borrowing limit, the Democratic aide said.

Such a Senate measure would increase pressure on the GOP-controlled House to do the same. But Republican House leaders have made clear they will insist on concessions from Democrats before agreeing to raise the debt ceiling.

Debt ceiling ‘like the smoke alarm’

At issue is how to reach an agreement to fund the government in the newly started fiscal year and raise the $16.7 trillion debt limit.

Conservative Republicans intent on shrinking the government while trying to weaken Obamacare demand that any agreement on funding and raising the debt limit include their priorities.

“The debt ceiling is there for a purpose. It’s like the smoke alarm,” said House Financial Services Committee Chairman Jeb Hensarling, R-Texas. “Democrats want to unplug the smoke alarm, and Republicans want to go out and fight the fire.”

Boehner has insisted that a deal to raise the debt ceiling must include deficit reduction steps that would lower costs of entitlement programs such as Medicare, Medicaid and Social Security.

However, he appeared to move away from the demand of the tea party conservative wing of his GOP caucus to dismantle or defund the health care reforms passed by Democrats in 2010 and upheld by the Supreme Court last year.

Last week, a House Republican said on condition of not being identified that Boehner told GOP colleagues in private meetings he would not allow a government default to occur. But Boehner has remained adamant that an increased debt limit requires accompanying spending cuts.

On the shutdown, Obama and Democrats say the House would pass a Senate spending plan to end it if Boehner allowed a vote.

A CNN survey shows that 18 Republicans would join all 200 House Democrats in supporting the plan, exceeding the 217 majority needed for it to pass. At the same time, the CNN survey showed that fewer Republicans were willing to join Democrats in a procedural move called a discharge petition that would force Boehner to hold a vote.

Cole said Tuesday that Boehner told his caucus at a morning meeting that no such vote would take place.

“He basically said we’re going to have a negotiation” instead of caving to Democratic calls to vote on the Senate version, Cole said.

Anti-Obamacare effort fades

Tea party conservatives forced Boehner to add anti-Obamacare amendments to the Senate spending plan that would end the shutdown, and the Senate and Obama rejected them.

According to Cole, the effort to dismantle Obamacare through the budget negotiations appeared dead.

“I think it’s been overtaken by the debt ceiling,” he said, adding that one specific proposal to repeal a tax on medical devices under Obamacare could be part of the broader negotiations by the special committee being proposed by House Republicans.

In a new national poll released Monday, most respondents said the government shutdown was causing a crisis or major problems for the country.

While the CNN/ORC International survey also indicated that slightly more people were angry at Republicans than Democrats or Obama for the shutdown, both sides were taking a hit.

According to the poll conducted over the weekend, 63% of respondents said they were angry at the Republicans for the way they have handled the shutdown, while 57% expressed anger at Democrats and 53% at Obama.

“It looks like there is more than enough blame to go around, and both parties are being hurt by the shutdown,” said CNN Polling Director Keating Holland.

If Congress fails to raise the debt ceiling, borrowing money to meet the nation’s obligations won’t be possible, CNNMoney’s Jeanne Sahadi reported Monday.

Instead, Sahadi reported, lawmakers would have a few options to choose from that would have to be implemented right away — cut government spending for the military and other discretionary programs by up to 33% every month; cut mandatory spending such as entitlement programs by 16% every month, and raise taxes by up to 12% every month.

CNN’s Ted Barrett, David Simpson, Dana Bash and Brianna Keilar contributed to this report.