Obama warns Republicans against debt showdown

WASHINGTON (AFP) - President Barack Obama on Monday warned Republicans against using the debt ceiling as a "bargaining chip," saying a failure to raise it would sow financial chaos and send markets into a tailspin.

"To even entertain the idea of this happening, of the United States of America not paying its bills - it is irresponsible, it is absurd," Mr Obama said, repeating his demand for a rise in the nation's borrowing limit.

"We are not a deadbeat nation," the president said in the final press conference of his first White House term.

"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."

Congressional refusal to raise the debt limit beyond its current level of US$16.4 trillion (S$20.05 trillion) could delay key government payments, including Social Security checks and veterans benefits, paychecks to troops, air traffic controllers and the honoring of contracts with small businesses.

It could also result in another downgrade of the US credit rating, with potentially severe consequences for the global economy.

"Investors around the world will ask if the United States of America is in fact a safe bet," Mr Obama said.

"Markets could go haywire, interest rates would spike for anybody who borrows money ... It would be a self-inflicted wound on the economy."

The United States ran up against its current debt limit at the end of 2012, but the government is using "extraordinary measures" to extend the limit until late February.

Outgoing Treasury Secretary Timothy Geithner also called on Congress to raise the debt limit, warning that failing to do so would "impose severe economic hardship on millions of individuals and businesses."

"Threatening to undermine our creditworthiness is no less irresponsible than threatening to undermine the rule of law, and no more legitimate than any other common demand for ransom," he wrote in a letter to House Speaker John Boehner.

US Federal Reserve Chairman Ben Bernanke also waded into the debate, telling a university forum it was "very, very important that Congress take the necessary action to raise the debt ceiling."

Mr Obama said any potential solution lies with the Republican House leadership, some of whose members have demanded that any rise in the debt ceiling be matched dollar for dollar with deep spending cuts.

Lawmakers can "act responsibly, and pay America's bills, or they can act irresponsibly and put America through another economic crisis," Mr Obama said.

"But they will not collect a ransom in exchange for not crashing the American economy."

Republicans reacted swiftly, essentially ignoring Mr Obama's demand to decouple the spending debate from the debt ceiling and giving every indication that the face-off will continue.

"The president and his allies need to get serious about spending, and the debt-limit debate is the perfect time for it," Senate Minority Leader Mitch McConnell said.

Mr Boehner acknowledged that the consequences of failing to raise the debt limit are real, "but so too are the consequences of allowing our spending problem to go unresolved."

He said the Republican-controlled House will "do its job" by passing legislation to control spending and meet US debt obligations and would insist that the Democratic majority in the Senate do the same.

But Mr Obama warned of renegade House Republicans who are reportedly considering letting the US government go into default and actually shutting down temporarily unless the president agrees to dramatic spending cuts.

"The last time Republicans in Congress even flirted with this idea, our AAA credit rating was downgraded for the first time in our history," said Mr Obama, referring to the bitter political battle over the ceiling in 2011.

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