'We are not a deadbeat nation': Obama on debt limit

WASHINGTON (AFP) - United States President Barack Obama sent a stern warning to Republican lawmakers on Monday against using the debt ceiling as a "bargaining chip," saying a failure to raise the borrowing limit would sew 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 debt limit rise.

"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$20.1 trillion) could delay key government payments.

Mr Obama warned that this could include Social Security checks and veterans benefits, paychecks to troops, air traffic controllers, and the honoring of contracts with small businesses.

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

"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.

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

"The full faith and credit of the United States of America is not a bargaining chip," he said.

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 de-couple 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.

House Speaker John 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." Mr Boehner said the Republican-controlled House of Representatives will "do its job" by passing legislation to control spending and meet US debt obligations and would insist the Democratic majority in the Senate do the same.

Mr Obama also warned off renegade House Republicans who are reportedly considering letting the US government go into default and actually shut down temporarily unless Obama agrees to dramatic federal spending cuts.

"I think that would be a mistake (and) would be profoundly damaging to our economy," he said.

"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.

A potentially bigger fiscal showdown is taking shape once again, with battles over the debt ceiling, the national budget and the fate of mandated spending cuts all converge around the same time: late February.

Republicans are smarting after accepting a year-end deal to avert the so-called fiscal cliff that imposed a tax hike on the richest Americans - a major concession for conservatives.

But the measure delayed for two months any handling of the US$100 billion in automatic spending cuts set to hit in 2013 and that had threatened to drive America back into recession.

Mr Obama said he agreed with Republicans on the need to have a debate over how to reduce the deficit.

"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."