By Nick Mann | 15 January 2013

US President Barack Obama has called on Congress to quickly agree an increase in the country’s debt ceiling, warning that failure to do so could expand the deficit and tip the country into recession.

Speaking yesterday, Obama again ruled out any kind of deal with Republicans in Congress that would involve them authorising an increase in the US government’s borrowing limit in return for further spending cuts.

Calling on Congress to ‘act responsibly’ by authorising an increase in the limit, he warned that the threat of the US defaulting on its debts was already ‘hurting’ the economy.

The government formally reached its current debt ceiling on December 31, but since then the Treasury Department has been using a series of ‘extraordinary measures’ to pay the bills. These measures are expected to be exhausted by mid-February, raising fears of a repeat of the last time the ceiling was reached in August 2011.

Then, protracted political negotiations and fears of a US default contributed to the US losing its triple-A credit rating.

Yesterday, Obama said that while he was ‘willing to compromise’ on reducing the deficit, the country could ‘not afford another debate with this Congress about whether or not they should pay the bills they’ve already racked up’.

Not increasing the debt ceiling in time could lead to social security benefits and government employees – including the military – going unpaid and markets going ‘haywire’, Obama said.

‘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,’ he explained.

‘But they will not collect a ransom in exchange for not crashing the American economy.  The financial wellbeing 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,’ he added. ‘The last time Republicans in Congress even flirted with this idea, our triple A 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.’ 

Responding to Obama’s speech, the Republican leader of the House of Representatives, John Boehner, said there was no popular support for the debt ceiling being increased without government spending being cut.

‘The consequences of failing to increase the debt ceiling are real, but so too are the consequences of allowing our spending problem to go unresolved,’ he said in a statement. ‘Without meaningful action, the debt will continue to act as an anchor on our economy, costing American jobs and endangering our children’s future.’

‘The House will do its job and pass responsible legislation that controls spending, meets our nation’s obligations and keeps the government running, and we will insist that the Democratic majority in Washington do the same.’