Obama on the Debt Ceiling Debate: It’s Absurd!

President Barack Obama held the last press conference of his first term on Monday. The President’s swearing-in ceremony will take place in just one week, on January 21, following a private oath of office on January 20.Obama Pointing

“Right now, our economy is growing and our businesses are creating new jobs,” Obama said at the beginning of the press conference. “So, we are poised for a good year if we make smart decisions and sound investments, and as long as Washington politics don’t get in the way of America’s progress.”

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Jobs have been a central part of the President’s economic plan, and recently the Federal Reserve tied its monetary policy to the U-3 unemployment rate. The Fed has promised to keep its foot on the gas until the official rate hits 6.5 percent, as long as inflation stays below 2.5 percent. At the current rate of 150,000 jobs added per month, many economists, including presidents of the regional Federal Reserve banks, don’t think the rate will drop that low until at least 2014.

In light of the fiscal cliff negotiations, and now pressured by the debt ceiling and delayed sequester, America’s economy has been slow to get back on its feet. Job growth has been suppressed in light of rampant uncertainty, and everybody from consumers to business leaders seem to agree with Obama’s sentiment: 2013 could be a good year, but Washington politics have become a dangerous economic risk. A fiscal cliff solution was found after the eleventh hour, and the debt ceiling deadline is not as soft.

U-3 Unemployment 2

“The other congressionally imposed deadline coming up is the so-called debt ceiling, something most Americans hadn’t even heard of before two years ago,” said Obama. “So I want to be clear about this: The debt ceiling is not a question of authorizing more spending. Raising the debt ceiling does not authorize more spending. It simply allows the country to pay for spending that Congress has already committed to.”

The current debt ceiling of $16.4 trillion was officially hit on December 31, 2012. Treasury Secretary Timothy Geithner is acting as a financial MacGyver in order to avoid breaching the limit for a few weeks, but by most estimates the hard deadline for a decision — defaulting or increasing the limit — will arrive late in February or early in March.

If you have your economic calendar handy, that’s about the same time that Congress pushed off the sequester until. And, unsurprisingly, politicians have threatened to use the full faith and credit of America’s debt as a bargaining chip in order to get their way in the sequester negotiations.

Debt as percent of GDP

Also unsurprisingly, the President appeared frustrated as he reiterated his position on the debt ceiling. “These are bills that have already been racked up, and we need to pay them,” he said.Shoot Foot

“It would be a self-inflicted wound on the economy. It would slow down our growth, might tip us into recession. And ironically it would probably increase our deficit. So to even entertain the idea of this happening, of the United States of America not paying its bills, is irresponsible. It’s absurd.”

At the end of the day, it’s clear who Obama thinks is standing in the way of  solving this issue and removing uncertainty. “Republicans in Congress have two choices here. They can act responsibly, and pay America’s bills, or they can act irresponsibly and put America through another economic crisis,” said Obama.

“The last time Republicans in Congress even flirted with this idea, our AAA credit rating was downgraded for the first time in our history. Our businesses created the fewest jobs of any month in nearly the past three years, and ironically, the whole fiasco actually added to the deficit,” he added.

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