Armey stiffens GOP budget stance House majority leader says Congress will not raise debt limit after all

January 22, 1996|By NEW YORK TIMES NEWS SERVICE

WASHINGTON -- In the latest Republican effort to revive the party's stymied economic and social agendas, House Majority Leader Dick Armey said yesterday that Congress would refuse to extend the nation's ability to borrow money to meet its bills unless President Clinton yields to the party's budget-cutting initiatives to decrease "the size and intrusiveness of government."

The position outlined by Mr. Armey of Texas, a close ally of Speaker Newt Gingrich, signaled that the Republicans might be jTC willing to use the threat of national default to force Mr. Clinton to give more ground. His comments on the NBC News program "Meet the Press" came just a day before Congress goes back into session.

Mr. Armey's position directly contradicted assurances given the past week by other Republican leaders -- including Mr. Gingrich and Rep. John R. Kasich, the chairman of the House Budget Committee -- that a way would be found to make sure the government could pay its obligations, from interest on the debt to Social Security to veterans' benefits.

For Mr. Clinton, any delay or prolonged debate over raising the nation's borrowing authority would have the same effect as no increase at all: It would force the Treasury Department to find new techniques -- including some that the Clinton administration itself has said may be of uncertain legality -- to raise cash to keep paying its bondholders. Treasury Secretary Robert E. Rubin has said that the country would run out of money around Feb. 15.

Mr. Rubin's fear -- and, in a way, his greatest weapon against the Republicans -- is that the bond markets would suddenly conclude that the threat of default is quite real. That would likely result in a surge in the interest rates the world markets charge the United States to borrow money, an increase that would ripple through the economy, sending home mortgage rates and other key interest rates higher.

Already, the nation's two biggest credit rating agencies, Moody's and Standard and Poor's, have warned that the United States' "AAA" credit rating could be at risk. Traditionally, U.S. Treasury securities have been regarded as the world's least-risky investment, but that judgment, and the cost of borrowing, could change dramatically if investors concluded that gridlock in Washington could delay the government's ability to pay them on time.

Mr. Rubin has made clear that he has a plan to avoid the $4.9 trillion debt limit. But he has refused to discuss the details publicly, in part because lawyers for the Treasury and the Justice Department are still working on a legal justification for such steps. "Clearly, we're in terra nova," Mr. Rubin said recently, "and this is not something we can do indefinitely."

Mr. Rubin said through a spokesman that he did not want to respond to Mr. Armey yesterday. But appearing on the same television show, Leon E. Panetta, the White House chief of staff, said that it was "disturbing" that "the Republicans are going to hold the debt ceiling hostage to their agenda."

Mr. Armey said that Congress would not shut the government down again, as it did twice at the end of last year. Instead, he suggested that a "continuing resolution" would be passed to keep the government operations running for 30 days or so, when the current measure expires Friday.

He said those government programs that haven't had their budgets approved would be funded at about 75 percent of 1995 levels.

Mr. Gingrich could not be reached for comment.

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