Declaring that "United States is not a deadbeat nation," President Obama laid down the law for Congressional Republicans who have been rattling the saber of refusing to raise the debt ceiling as a bargaining chip to extract deep cuts and fundamental changes to Social Security, Medicare and Medicaid.
"The debt ceiling is not a question of authorizing more spending. Raising the debt ceiling does not authorize more spending. It simply allows the country to pay for spending that Congress has already committed to. These are bills that have already been racked up and we need to pay them," Obama declared In his last press conference of his first administration, January 14.
"So while I’m willing to compromise and find common ground over how to reduce our deficits, America cannot afford another debate with this Congress about whether or not they should pay the bills they’ve already racked up.
"If congressional Republicans refuse to pay America’s bills on time, Social Security checks and veterans’ benefits will be delayed. We might not be able to pay our troops, or honor our contracts with small business owners. Food inspectors, air traffic controllers, specialists who track down loose nuclear material wouldn’t get their paychecks. Investors around the world will ask if the United States of America is, in fact, a safe bet. Markets could go haywire. Interest rates would spike for anybody who borrows money -- every homeowner with a mortgage, every student with a college loan, every small business owner who wants to grow and hire. It would be a self-inflicted wound on the economy. It would slow down our growth, might tip us into recession, and ironically, would probably increase our deficit.
"So to even entertain the idea of this happening -- of the United States of America not paying its bills -- is irresponsible. It’s absurd. As the Speaker said two years ago, it would be -- and I'm quoting Speaker Boehner now -- “a financial disaster, not only for us, but for the worldwide economy.”
"So we've got to pay our bills. And Republicans in Congress have two choices here: They can act responsibly, and pay America’s bills; or they can act irresponsibly, and put America through another economic crisis. But they will not collect a ransom in exchange for not crashing the American economy. The financial well-being of the American people is not leverage to be used. The full faith and credit of the United States of America is not a bargaining chip.
"And they better choose quickly, because time is running short. The last time Republicans in Congress even flirted with this idea, our AAA credit rating was downgraded for the first time in our history; our businesses created the fewest jobs of any month in nearly the past three years; and, ironically, the whole fiasco actually added to the deficit.
So it shouldn’t be surprising, given all this talk, that the American people think Washington is hurting, rather than helping, the country at the moment. They see their representatives consumed with partisan brinksmanship over paying our bills, while they overwhelmingly want us to focus on growing the economy and creating more jobs.
"So let’s finish this debate. Let’s give our businesses and the world the certainty that our economy and our reputation are still second to none. We pay our bills. We handle our business. And then we can move on -- because America has a lot to do. We’ve got to create more jobs. We've got to boost the wages of those who have work. We’ve got to reach for energy independence. We've got to reform our immigration system. We’ve got to give our children the best education possible, and we've got to do everything we can to protect them from the horrors of gun violence."
The President laid out a more reasonable solution, and indicated he was working to reduce the deficit and willing t compromise.
"Right now, our economy is growing, and our businesses are creating new jobs, so we are poised for a good year if we make smart decisions and sound investments -- and as long as Washington politics don’t get in the way of America’s progress.
"As I said on the campaign, one component to growing our economy and broadening opportunity for the middle class is shrinking our deficits in a balanced and responsible way. And for nearly two years now, I’ve been fighting for such a plan -- one that would reduce our deficits by $4 trillion over the next decade, which would stabilize our debt and our deficit in a sustainable way for the next decade. That would be enough not only to stop the growth of our debt relative to the size of our economy, but it would make it manageable so it doesn’t crowd out the investments we need to make in people and education and job training and science and medical research -- all the things that help us grow.
"Now, step by step, we’ve made progress towards that goal. Over the past two years, I’ve signed into law about $1.4 trillion in spending cuts. Two weeks ago, I signed into law more than $600 billion in new revenue by making sure the wealthiest Americans begin to pay their fair share. When you add the money that we’ll save in interest payments on the debt, all together that adds up to a total of about $2.5 trillion in deficit reduction over the past two years -- not counting the $400 billion already saved from winding down the wars in Iraq and Afghanistan.
"So we've made progress. We are moving towards our ultimate goal of getting to a $4 trillion reduction. And there will be more deficit reduction when Congress decides what to do about the $1.2 trillion in automatic spending cuts that have been pushed off until next month.
"The fact is, though, we can’t finish the job of deficit reduction through spending cuts alone. The cuts we’ve already made to priorities other than Medicare, Medicaid, Social Security and defense mean that we spend on everything from education to public safety less as a share of our economy than it has -- than has been true for a generation. And that’s not a recipe for growth.
"So we’ve got to do more both to stabilize our finances over the medium and long term, but also spur more growth in the short term. I’ve said I’m open to making modest adjustments to programs like Medicare to protect them for future generations. I’ve also said that we need more revenue through tax reform by closing loopholes in our tax code for the wealthiest Americans. If we combine a balanced package of savings from spending on health care and revenues from closing loopholes, we can solve the deficit issue without sacrificing our investments in things like education that are going to help us grow.
"It turns out the American people agree with me. They listened to an entire year’s debate over this issue, and they made a clear decision about the approach they prefer. They don’t think it’s fair, for example, to ask a senior to pay more for his or her health care, or a scientist to shut down lifesaving research so that a multimillionaire investor can pay less in tax rates than a secretary. They don’t think it’s smart to protect endless corporate loopholes and tax breaks for the wealthiest Americans rather than rebuild our roads and our schools, invest in our workers’ skills, or help manufacturers bring jobs back to America. So they want us to get our books in order in a balanced way, where everybody pulls their weight, everyone does their part.
"That's what I want as well. That's what I've proposed. And we can get it done, but we're going to have to make sure that people are looking at this in a responsible way rather than just through the lens of politics."
President Obama has ruled out exercising the 14th Amendment, which prohibits the government from failing to honor its obligations (which is the basis for the "full faith and credit of the United States, and is the reason that the world still flocks to buy US treasuries even at negative interest rates). He also ruled out the more outrageous idea of minting a $1 trillion coin.
"The issue here is whether or not America pays its bills," he said. "We are not a deadbeat nation. And so there’s a very simple solution to this: Congress authorizes us to pay our bills.
"Now, if the House and the Senate want to give me the authority so that they don’t have to take these tough votes, if they want to put the responsibility on me to raise the debt ceiling, I’m happy to take it. Mitch McConnell, the Republican Leader in the Senate, had a proposal like that last year, and I’m happy to accept it. But if they want to keep this responsibility, then they need to go ahead and get it done.
"And there are no magic tricks here. There are no loopholes. There are no easy outs. This is a matter of Congress authorizes spending. They order me to spend. They tell me, you need to fund our Defense Department at such and such a level; you need to send out Social Security checks; you need to make sure that you are paying to care for our veterans. They lay all this out for me because they have the spending power. And so I am required by law to go ahead and pay these bills.
"Separately, they also have to authorize the raising of the debt ceiling in order to make sure that those bills are paid. And so, what Congress can't do is tell me to spend X, and then say, but we're not going to give you the authority to go ahead and pay the bills.
"And I just want to repeat -- because I think sometimes the American people, understandably, aren't following all the debates here in Washington -- raising the debt ceiling does not authorize us to spend more. All it does is say that America will pay its bills. And we are not a dead-beat nation. And the consequences of us not paying our bills, as I outlined in my opening statement, would be disastrous.
"So I understand the impulse to try to get around this in a simple way. But there's one way to get around this. There's one way to deal with it. And that is for Congress to authorize me to pay for those items of spending that they have already authorized.
"And the notion that Republicans in the House, or maybe some Republicans in the Senate, would suggest that “in order for us to get our way on our spending priorities, that we would risk the full faith and credit of the United States” -- that I think is not what the Founders intended. That's not how I think most Americans think our democracy should work. They've got a point of view; Democrats in Congress have a point of view. They need to sit down and work out a compromise."
In fact, the President has laid out a plan for more than $1 trillion in spending cuts, on top of more than $1 trillion in spending cuts already made (in fact, the debt to GDP ratio is going down) that would achieve the target of $4 trillion reduction, and noted that the Republicans have not put up a plan that achieves the necessary reductions because Republicans refuse to make any cuts in Defense spending.
"Keep in mind that what we've heard from some Republicans in both the House and the Senate is that they will only increase the debt ceiling by the amount of spending cuts that they're able to push through and -- in order to replace the automatic spending cuts of the sequester -- that's $1.2 trillion. Say it takes another trillion or trillion-two to get us through one more year, they'd have to identify $2.5 trillion in cuts just to get the debt ceiling extended to next year -- $2.5 trillion," he said.
"Congress has not been able to identify $1.2 trillion in cuts that they're happy with. Because these same Republicans say they don’t want to cut defense; they've claimed that they don't want to gut Medicare or harm the vulnerable. But the truth of the matter is that you can't meet their own criteria without drastically cutting Medicare, or having an impact on Medicaid, or affecting our defense spending. So the math just doesn’t add up.
"Now, here’s what would work. What would work would be for us to say we’ve already done close to $2 trillion in deficit reduction, and if you add the interest that we won’t be paying because of less spending and increased revenue, it adds up to about $2.5 trillion. The consensus is we need about $4 trillion to stabilize our debt and our deficit, which means we need about $1.5 trillion more. The package that I offered to Speaker Boehner before we -- before the New Year would achieve that. We were actually fairly close in terms of arriving at that number.
"So if the goal is to make sure that we are being responsible about our debt and our deficit, if that’s the conversation we’re having, I’m happy to have that conversation. And by closing some additional loopholes through tax reform -- which Speaker Boehner has acknowledged can raise money in a sensible way -- and by doing some additional cuts, including making sure that we are reducing our health care spending, which is the main driver of our deficits, we can arrive at a package that gets this thing done.
"I’m happy to have that conversation. What I will not do is to have that negotiation with a gun at the head of the American people -- the threat that 'unless we get our way, unless you gut Medicare or Medicaid, or otherwise slash things that the American people don’t believe should be slashed, that we’re going to threaten to wreck the entire economy.' That is not how historically this has been done. That’s not how we’re going to do it this time."