white house warns of us debt armageddon

http://www.theaustralian.com.au/news/breaking-news/white-house-warns-of-debt-armageddon/story-fn3dxity-1226037548181





White House warns of debt 'Armageddon'
From: AFP April 12, 2011 5:07AM
THE White House has warned Republicans that failing to raise the $US14.29 trillion ($A13.56 trillion) US debt limit would spark "Armageddon-like" consequences for the slowly recovering US economy.

As a new political showdown looms over the economy following a defused budget row last week, aides also said President Barack Obama now realised his vote as a senator against raising the debt ceiling in 2006 was a mistake.

"The consequences ... of failure to raise the debt ceiling would be Armageddon-like in terms of the economy," said White House spokesman Jay Carney.

Congress must raise the US debt limit, or the maximum amount the Treasury is allowed to borrow, by May 16 or see the United States default on interest payments of its debt.

But the move has become embroiled in fiercely partisan battles over the economy and spending.

Carney warned that the result of failing to raise the debt ceiling were so grave it would be irresponsible for politicians to exploit the drama for political gain.
"We don't need to pay chicken with our economy by raising the debt ceiling," said Carney.

However, Republicans who control the House of Representatives are demanding vast new spending cuts from Obama - over and above the $US38 billion ($A36.06 billion) dollars agreed to to end the budget row last week, in exchange for raising the debt limit.

Obama, under pressure to define the economic debate a week after launching his 2012 reelection battle, is due to tackle the issue - and a budget deficit that is set to reach $US1.6 trillion ($A1.52 trillion) this year - in a major speech tomorrow.

Treasury officials have said failure to raise the debt limit could drive up interest rates, making it more difficult for Americans to borrow money at a time when home values are depressed and market-linked pension savings are down.

They also say global confidence in the US economy would also be badly hit.

The White House also delicately navigated around a vote made by Obama in March 2006 against a plan to raise the debt limit while George W Bush was president, in protest at what he said was a lack of leadership.

"The president ... regrets that vote and thinks it was a mistake," Carney said.

"He realises now that raising the debt ceiling is so important to the health of this economy and the global economy that it is not a vote that, even when you are protesting an administration's policies, you can't play around with.

"You need to take very seriously the need to raise the debt limit so that the full faith and credit of the United States government is maintained around the globe."

Carney also quoted the head of JPMorgan Chase, CEO Jamie Dimon, as saying anyone who failed to raise the debt limit would be "crazy" and any move of that kind would have "catastrophic and unpredictable" results.