Republican leader threatens default on U.S. debt

January 21, 1996
Web posted at: 7:45 p.m. EST

From Correspondent Kathleen Koch

WASHINGTON (CNN) -- A top House Republican issued new threats Sunday in the continuing budget impasse.

House Majority Leader Dick Armey, R-Texas, said Congress would not vote to extend the debt ceiling unless the president agrees to some GOP budget-cutting measures.

Speaking on NBC's "Meet the Press," Armey said legislation to extend the debt ceiling before the February 15 deadline "is not coming through the House unless it carries with it something that is a substantial share of our agenda of decreasing the size and intrusiveness of government." (247K AIFF sound or 247K WAV sound)

Armey's statement contradicted earlier assurances by House Budget Committee Chairman John Kasich, R-Ohio, and infuriated Democrats.

"We're talking about an action -- if we really defaulted on the debt -- that would cause interest rates to be higher than they should be for probably the next 20 years. I can't think of a more irresponsible thing to do," said House Minority Leader Richard Gephardt, D-Missouri, on ABC's "This Week with David Brinkley"

Budget talks between Republican leaders and the White House fell through last week. White House Chief of Staff Leon Panetta said the president hopes to resume talks this week sometime after his State of the Union address Tuesday.

A third government shutdown appears to be unlikely if the current temporary spending bill expires on Friday. Armey said Congress would likely pass a new bill that would temporarily fund government programs at 75 percent of their current level. (196K AIFF sound or 196K WAV sound)

Panetta has said President Clinton would sign such a bill. On the issue of the debt ceiling, however, the parties moved away from compromise Sunday.

Armey said he would consider linking any bill to raise the debt ceiling to measures to eliminating the Department of Commerce and preventing the Treasury Department from juggling federal accounts to pay U.S. debts.

After Clinton vetoed a debt limit bill with similar restrictions in November, Treasury Secretary Robert Rubin used government trust funds to keep the U.S. from exceeding its borrowing limit.

If there is no bill to extend the debt ceiling and emergency measures are not taken by February 15, the U.S. could default on treasury bills and bonds with possible disruption to financial markets.

Armey appears to have backing from at least one member of the Senate. "I can foresee that there would be limitations on the Treasury's ability to use Social Security trust funds and other trust funds to put off a problem with the debt ceiling," said Senate Majority Whip Trent Lott, R- Mississippi.

The White House was clearly disturbed by the GOP threat to hold the debt ceiling hostage.

"It would be a disaster for this country if we reached that point. So the President has made very clear, he's not going to be threatened with the shutdown of the federal government, and he's not going to be threatened with the default of this economy," Panetta said Sunday.

President Clinton did not respond directly to Armey's threat, but during his weekly radio address Saturday he said Congress would put "the credit worthiness of the United States at risk" if it forces a default on the debt.

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The Associated Press contributed to this report.