Obama Haggles With Republicans Over Spending Cuts

Speaker of the House John Boehner speaks to the media following a meeting at the White House between President Barack Obama and the House Republican Conference about the national debt limit and budget plans. Photographer: Saul Loeb/AFP/Getty Images

U.S. House Republicans emerged from a White House meeting with President Barack Obama today indicating they broke no new ground in talks to raise the nation’s debt ceiling in exchange for reductions in government spending.
House Speaker John Boehner and other Republican leaders said the private session in the East Room focused on the impact of the government’s debt on the economy and jobs.
“If we’re going to get serious about creating jobs in America we’ve got to reduce some of the uncertainty” within the business community, Boehner said outside the White House. “Some of that uncertainty is caused by the giant debt that is facing our country.”
Republicans are holding to their demand that spending cuts exceed an increase in the government’s legal debt limit, he said. The meeting followed the House’s 318-97 vote yesterday defeating a measure that would have raised the $14.3 trillion debt limit by $2.4 trillion without spending reductions.
Republicans scheduled the vote to drive home their position that a debt-limit increase without what Boehner called “major spending cuts” is unacceptable. Democrats derided the vote as political theater.

Biden Meetings

Negotiations over increasing the debt ceiling as part of a package of spending cuts began May 5, led by Vice President Joe Biden. There have been four meetings between the vice president and six congressional leaders, with the next one set for June 9. Biden has said progress is being made, and that negotiators are trying to find savings of $1 trillion over 10 years.
House Majority Leader Eric Cantor, a Virginia Republican, said after today’s White House session that as debt-limit negotiations continue it’s “very, very important for us to look at growth as part of the fix.”
Cantor said he asked Obama to work with Republicans on a “tax reform plan” that is being put together by Ways and Means Committee Chairman Dave Camp, a Michigan Republican.
He also asked Obama to steer clear of “any notion that we’re going to increase taxes” as part of any agreement on raising the debt limit
“It’s counterintuitive to believe that you increase taxes on those individuals and entities that you are expecting to create jobs,” Cantor said.

Debt and Jobs

Boehner, an Ohio Republican, released a statement earlier today signed by more than 150 economists supporting the link between spending cuts and the debt limit.
“Increasing the debt ceiling without significant spending cuts and budget reforms will send a message to American job creators that we still are not serious about ending Washington’s spending addiction, and this will bring further harm to private- sector job growth in America,” Boehner said in the statement.
House Budget Committee Chairman Paul Ryan said that at today’s meeting he expressed concerns to Obama about how the president was characterizing the plan Ryan wrote to privatize Medicare by giving people subsidies to buy health insurance.
“We’ve got to get our debt under control, and if we try to demagogue each other’s attempts to do that then we’re not applying the kind of political leadership we need to get this economy growing,” Ryan, a Wisconsin Republican, told reporters.

‘The Moment’

Boehner said he stressed to Obama that now “is the moment” to deal with the deficit issues facing the government. “We can work together and solve this problem,” he said. “Let’s not kick the can down the road one more time.”
Obama is to meet with the House Democratic caucus at the White House tomorrow.
The Standard & Poor’s 500 Index slipped 1.6 percent at 1:34 p.m. in New York and the Stoxx Europe 600 Index sank almost 1 percent as data on jobs and manufacturing fueled concern that economic growth is slowing.
The cost of insuring U.S. government debt against losses for one year with credit default swaps is rising while the price of protection over longer periods has fallen, as investors bet the standoff over raising the debt ceiling may drag into August.
Credit default swaps that expire in one year rose to 47.425 basis points as of yesterday from 23.74 basis points on May 16, when the U.S. reached its borrowing limit. A 33 percent jump on May 20 was the biggest one-day percentage increase since July 2008, according to data compiled by Bloomberg. A basis point equals $1,000 annually on a swap protecting $10 million of debt.

Credit Default Swaps

Reflecting long-term investor confidence in U.S. debt, swaps protecting against default for 10 years has fallen to 55.48 basis points from 61.17 basis points over the same period, according to CMA, which is owned by CME Group Inc. (CME) and compiles prices quoted by dealers in the privately negotiated market.
Credit default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. Rising prices indicate declining investor confidence in a borrower’s creditworthiness.
Amid Washington’s debate about the debt, bond market yields in the U.S. are lower now than when the government was running a budget surplus a decade ago. The yield on the benchmark 10-year Treasury note today fell below 3 percent for the first time in 2011, according to Bloomberg Bond Trader prices.