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UPDATE 2-Obama officials: Republicans see debt ceiling urgency

Published 04/14/2011, 06:56 PM

* Obama officials says Republicans understand risk

* Lawmakers says spending cuts necessary (Recasts with further quotes from officials)

By Rachelle Younglai and Jeff Mason

WASHINGTON, April 14 (Reuters) - The Obama administration expressed confidence on Thursday that the United States would raise its debt ceiling, saying Republican leaders understood the urgency of doing so despite vocal opposition from some in their party.

Congress is under pressure to raise the $14.3 trillion borrowing limit before it is reached as early as mid-May.

But Republicans are unwilling to do so without spending cuts and have threatened to take negotiations to the deadline -- an outcome that President Barack Obama, a Democrat, is eager to avoid.

Top administration officials said Republican leaders who met with Obama on Wednesday made clear they understood the importance of the issue.

"The Republican leaders say in private what they say in public, which is to say, 'of course we recognize we have to pass the debt limit, of course we recognize that America will meet its obligation,'" Treasury Secretary Timothy Geithner said.

"They understand that you can't take any risk the world starts to think the United States won't meet its obligations. There's no conceivable way that this city, this government can court that basic risk."

Democratic and Republican leaders from the Senate and the House of Representatives discussed the issue during a meeting with Obama on Wednesday before his speech laying out a plan to reduce the deficit.

"I think that in the meeting that the president had with the leaders yesterday, there was a pretty broad understanding that not extending the debt limit is just not an option," Gene Sperling, who heads the White House's National Economic Council, told a Bertelsmann Foundation forum.

The Treasury has forecast that the ceiling will be reached by May 16. It can take emergency measures to avoid hitting the debt ceiling, but those actions will only buy the United States a limited amount of time, until around July 8.

After that date Treasury will be unable to borrow money to fund government operations such as paying interest on U.S. debt.

BLAME, CUTS

If the debt ceiling were reached, prices on bonds issued by the U.S. government might rise. In the past the government has reduced the amount of debt it sells on a regular basis to pay for daily government expenses, such as wages for federal workers. It has also suspended the sale of new debt to stay under the debt limit.

With fewer bonds in the marketplace, prices rise on existing debt.

Geithner told Republican lawmakers they would shoulder the blame if Congress failed to raise the debt limit before markets grow uneasy.

"(Lawmakers) will say, 'there's leverage in it, we can advance it.' But that would be deeply irresponsible and they will own the risk," he said.

"It won't happen in the end, but if they take it too close to the edge, they will own responsibility for that miscalculation," he said.

Republican members of the Senate Finance Committee agreed that the debt ceiling had to be raised, but not without conditions to address the massive U.S. debt.

"We obviously recognize that we have to address debt reduction. That is obviously going to be central to the discussion and the debate with respect to voting on the debt ceiling," Republican Senator Olympia Snowe said.

"There is probably bipartisan agreement on the issue of the necessity and the urgency of addressing the overall debt reduction issue in some fashion," she said.

Fellow Republican Senator John Thune told reporters he did not know how the debt ceiling could be raised without doing something to address the country's outstanding public debt, currently at $14.26 trillion.

According to a Reuters analysis of U.S. borrowing needs, an increase of more than $2 trillion would last until the November 2012 presidential election. (Additional reporting by Glenn Somerville and David Lawder; Editing by Xavier Briand)

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