8 Min Read
* Obama says extortion cannot be routine part of democracy
* Boehner says "disappointed" by Obama
* Boehner earlier struck slightly more conciliatory tone
* Rising tide of warnings on consequences of debt default
* Investors fret, S&P 500 closes down 1.2 pct
By Roberta Rampton and Tim Reid
WASHINGTON, Oct 8 (Reuters) - President Barack Obama refused to give ground in a fiscal confrontation with Republicans on Tuesday, saying he would negotiate on budget issues only if they agree to re-open the federal government and raise the debt limit with no conditions.
At a news conference, an unbending Obama said he would not hold talks on ways to end the fiscal impasse while under threat from conservative Republicans, but agreed to discuss anything, including his healthcare plan, if they restore government funding and raise the debt limit.
"If reasonable Republicans want to talk about these things again, I'm ready to head up to the Hill and try," Obama told reporters.
"But I'm not gonna do it until the more extreme parts of the Republican Party stop forcing (House Speaker) John Boehner to issue threats about our economy. We can't make extortion routine as part of our democracy."
Obama's comments followed an earlier phone call to Boehner, who had adopted a slightly more conciliatory tone in comments to reporters after a meeting with House of Representatives' Republicans.
Boehner had said there were "no boundaries" in potential talks, and made no mention of recent Republican demands to delay parts of Obama's healthcare law in return for approving funds to end the government shutdown.
But speaking to reporters after Obama's news conference, Boehner said he was "disappointed" by the president's approach.
"What the president said today was 'if there is unconditional surrender by Republicans, he'll sit down and talk to us.' That's not the way our government works," Boehner said.
The public give-and-take between Obama and Boehner was the most direct exchange between the two leaders since a White House meeting last week, but neither side has come up with a path to resolving the bitter fiscal stalemate.
The spending and budget impasse has shut down the federal government for eight days and threatens to prevent the raising of the country's $16.7 trillion borrowing limit before an Oct. 17 deadline identified by Treasury Secretary Jack Lew.
Investors are exhibiting increasing anxiety as the deadline for raising the debt ceiling approaches.
Interest rates on one-month U.S. government debt hit a 5-year peak on Tuesday and the Standard & Poor's 500 stock index closed down 1.23 percent.
"Until you see some progress, things will likely get worse," said Eric Green, global head of rates, currency and commodity research and strategy at TD Securities in New York.
On Tuesday, House Republicans proposed the creation of a bipartisan committee to work on the issue, which was rejected by Democrats. Senate Democrats also introduced a bill to raise the debt ceiling with no conditions through 2014, but included none of the deficit reductions that Republicans have demanded.
House Republicans emerged from a morning meeting saying they would insist on deficit-reduction talks with Obama as a condition for raising the federal debt limit, but some signaled they might pass short-term legislation to avert a default in exchange for immediate talks.
"If we have a negotiation and a framework set up, we can probably reach a way to raise the debt ceiling while the negotiation is in progress. But nobody is going to raise it before there is a negotiation," Republican Representative Tom Cole of Oklahoma said.
The impasse sparked a rising tide of warnings about the potential global economic chaos of a U.S. default, with foreign creditors and the International Monetary Fund's chief economist warning of the potential consequences.
"I think what could be said is if there was a problem lifting the debt ceiling, it could well be that what is now a recovery would turn into a recession or even worse," IMF chief economist Olivier Blanchard said.
Japan's finance minister said a failure by the United States to quickly resolve its political deadlock over government finances could damage the global economy.
"The U.S. must avoid a situation where it cannot pay (for its debt) and its triple-A ranking plunges all of a sudden," Japanese Finance Minister Taro Aso told reporters after a cabinet meeting.
"The U.S. must be fully aware that if that happens, the U.S. would fall into fiscal crisis," he said in the latest sign that Japan and China, the biggest foreign creditors to the United States, are worried the impasse could harm their trillions of dollars of investments in U.S. Treasury bonds.
Obama said he did not think the crisis would create lasting international damage, saying "folks around the world will attribute this to the usual messy process of American democracy."
The U.S. Chamber of Commerce, a traditional supporter of pro-business Republicans, also warned about further delays in reopening the federal government and raising the debt limit.
"The debt ceiling specifically must pass on a timely basis to avoid inflicting substantial and enduring damage on the U.S. economy," said Bruce Josten, the group's executive vice president.
Polls show growing public concern over the impasse, with Republicans getting slightly more of the blame.
A Reuters/Ipsos poll on Tuesday found the percentage of Americans concerned about the shutdown rose to 75 percent from 66 percent last week. Blame for Republicans grew to 30 percent from 26 percent, with the level of blame for Obama and Democrats at 19 percent, up from 18 percent.
Plenty of obstacles remain to settling the issue. In the Senate, Democrats introduced a bill on Tuesday to raise the government's borrowing authority by enough to last through 2014.
A Democratic aide said they were hopeful they could get the 60 votes needed to overcome procedural hurdles in the 100-member Senate and pass the debt ceiling bill with no strings attached, even though the measure includes no deficit reduction.
But Republican Senator John McCain, who some Democrats had hoped might support getting the "clean" debt ceiling bill to a vote, declined to back it when asked by reporters. "The answer to this is negotiations," said McCain from Arizona.
In the House, Republican leaders unveiled a proposal for a 20-member committee to make recommendations on a debt limit increase and look at ways to rein in the country's deficits, but Democrats quickly rejected the idea.
Under the legislation, the Republican House would name 10 members to the panel while the Democratic-led Senate would name the other 10. The panel would also make recommendations on a measure to fund the government for the 2014 fiscal year, ending the shutdown.
The plan is reminiscent of a failed 2011 "supercommittee" of Republicans and Democrats from the House and Senate that was asked to find trillions of new budget savings.
The White House said Obama would veto a bill for the new deficit-reduction panel if it reached his desk as it did nothing to solve the immediate obligation for Congress to open the government and pay its bills.
The special committee measure passed the House in a 224-197 vote on Tuesday evening with the support of just two Democrats and opposed by five Republicans. It seemed unlikely to be taken up in the Senate.
Despite widespread warnings about failing to raise the debt limit, some House Republicans dismissed the prospect of a first-ever default.
"There's no way to default. There is enough money coming into the Treasury to pay interest and roll over principal," said Representative Justin Amash of Michigan, a favorite of the smaller-government Tea Party wing of the Republican Party.
Asked about warnings of catastrophic consequences if the debt limit is not increased, Amash told reporters: "I say it's patently not true what they are saying."