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Harkin unsure whether debt ceiling agreement will be reached by deadline

This week Moody’s Investors Service made good on an earlier warning that it would place the U.S. government’s rating under review for possible downgrade if movement did not occur in federal debt-ceiling negotiations. Thursday the S&P placed the federal government’s AAA rating on creditwatch because of a growing risk of default in August.

“Right now, I’m not certain what’s going to happen,” U.S. Sen. Tom Harkin said Thursday on a conference call with reporters.

Image has not been found. URL: http://media.iowaindependent.com/2010/05/14-102009-employ-098-300x281.jpgU.S. Sen. Tom Harkin, D-Iowa (Lauren Victoria Burke/WDCPIX.COM)

“I’d like to think that cooler heads are going to prevail and that there will be something that will avoid default in August, but time is getting pretty short.”

Some politicians have warned that failure to raise the debt-ceiling could lead to a situation in which government payments like Social Security would not be provided. Others have labeled such statements as fear-mongering. Harkin said the reality is that if negotiations fail, the federal government will obviously need to make some very difficult choices but because the situation is unprecedented it is difficult to know exactly what the exact outcome will be.

“We do have income coming in — about $170 billion a month, but the out-flow is $300-some billion a month. So you could perhaps pay some bills, but not pay other bills. That would be a pretty stark choice as to which ones you pay and which ones you don’t. I think bond ratings would tank. I think that interest rates would start to go up,” he said.

“I don’t know what all would happen. No one knows because we’ve never actually done it — not since the Revolutionary War have we defaulted.”

Although there are currently television and radio ads running in Iowa claiming that raising the debt-ceiling would allow for government to increase spending, Harkin said the assertion is false.

“[Raising the debt-ceiling] is about paying for the debts that you rang up previously,” he said. “It’s not about making it possible for you to spend more money in the future.”

For that reason, Harkin and other Democrats find the GOP push to lay the state of the nation’s economy at President Obama’s feet to be disingenuous at best.

“You’ve got to look at what got us into this mess,” he said.

“Before you can find your way out of maze, you’ve got to figure out how you got into it.”

The current economic situation followed a budget surplus in 2000-2001, he said, that a Republican majority and President George W. Bush squandered.

Harkin points to tax cuts, “most of which benefited the most wealthy in our country,” and borrowing money to wage wars in Iraq and Afghanistan as key examples of the spending perpetrated by Republican leaders. According to the nonpartisan Congressional Budget Office, he said, Democrats were on track with a plan that would have began to slice away at the federal deficit before Republicans took control.

“When you add up all of that, it plunges [the country] into debt,” he said. “And it was the Republicans who voted for all of that. Not me. We (Democrats) wanted to pay for all of those things as we went along. We didn’t want to squander the surplus that we had built up. We wanted to pay off the national debt, and the CBO said we could do it if we stayed on that same course we were on in 2000-2001.

“So, it is really disingenuous for [Sen. Mitch] McConnell and others to say that this is Obama’s economy. They are the ones who rang up the debt. Now they don’t want to pay for it.”

Congress has until Aug. 2 to raise the federal borrowing limit or the government risks defaulting on its debts. The debt-ceiling is a legal limit, in place since 1917, on how much debt the federal government can accumulate in two distinct ways — issuance of U.S. Treasury Bonds and scooping into its own trust funds (typically the Social Security trust fund).

President Obama is expected to address the nation Friday morning on current negotiations. The live-stream is embedded below:

JOIN THE LIVE CHAT VISIT WHITEHOUSE.GOV

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