Obama brawl with Congress looms as investors unalarmed

Averting Crisis

The budget deal that Obama and lawmakers struck this week averted the so-called fiscal cliff of income-tax increases on most Americans and delayed automatic spending cuts until March 1. So while Obama has pledged not to negotiate over the debt limit, that timing raises the possibility that talks to address the automatic cuts would also include the debt ceiling.

Treasury Secretary Timothy F. Geithner, a key figure in Obama’s response to the recession and the 2011 debt-limit talks, plans to leave the administration at the end of January, even if the president and Republicans haven’t reached an agreement on the debt ceiling, said two people familiar with the matter.

Tax-Spending Split

The two sides start far apart.

House Republican leaders have said they will demand a dollar in spending cuts for every dollar that the federal debt limit is increased. House Republicans plan to discuss strategy at a retreat in Williamsburg, Virginia, later this month.

In contrast to the Republican focus on spending cuts, Obama said on Dec. 31 that any deficit reduction to block scheduled spending cuts would have to be “balanced” to also contain more tax revenue.

The administration believes the composition of deficit savings included in the tax deal to pay for a two-month delay in the automatic spending cuts sets the template for any future deal, according to a White House official, who requested anonymity. The $24 billion in savings was split evenly between new revenue and spending reductions, half of which came from defense.

The U.S. reached its $16.4 trillion legal debt limit on Dec. 31, and the Treasury Department began using extraordinary measures to finance the government. It will exhaust that avenue as early as mid-February, the Congressional Budget Office says.

Bitter Climate

Negotiations over raising the limit will play out in a bitter political climate. Some Republicans complain that Obama’s insistence on increasing tax rates for the wealthy rather than reverting to a more flexible position he took in 2011 amounts to using his re-election victory to bully them.

Several also grumbled about a campaign-style event the president hosted at the White House on Dec. 31 criticizing Republicans during a delicate moment of the tax talks.

“I just listened to the president, and my heart’s still pounding,” Senator Bob Corker, a Tennessee Republican, said on the Senate floor. “I am very disappointed to hear what the president just had to say in front of a pep rally, something very unbecoming of where we are at this moment.”

Emotions ran so high during the latest round of talks that at one point Boehner told Senate Majority Leader Harry Reid, a Nevada Democrat, to “Go F--- Yourself,” according to two people familiar with the conversation, which took place just steps from the Oval Office.

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