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NO FUNDS FOR THE TREASURY (House of Representatives - December 14, 1995)

Gingrich Threatens U.S. Default If Clinton Won't Bend on Budget

(BY DAVID E. SANGER)

Washington.--House Speaker Newt Gingrich threatened today to send the United States into default on its debt for the first time in the nation's history, to force the Clinton Administration to balance the budget on Republican terms.

His comments, a more extreme version of the hardball stance frequently used in past budget showdowns, raised the specter that the looming standoff may begin to rattle financial markets around the world. Mr. Gingrich's remarks came in the middle of a day in which the dollar plunged as much as 5 percent against major currencies before recovering slightly, sending interest rates up sharply. [Page D13.] The Speaker's statement appeared to be one of several factors that added to the markets' unsettled condition.

More broadly, Mr. Gingrich's speech to the Public Securities Association, which represents traders in Government debt, underscored the growing agitation and sense of imminent collision in official Washington as both Democrats and Republicans move toward a confrontation that could shut the Government down this fall.

Throughout the capital, there was a sense that the current had quickened and the rumble of a great waterfall could be heard close ahead. Angry disputes broke out on wildly varying issues. Republicans threatened to block sending American ground troops to enforce the Bosnia peace plan, agreed to vast reductions in the protection for endangered species and Federal lands, and pushed ahead with plans for radical changes in Medicare and Medicaid. Democrats fumed and vowed to do what they could to slow the legislation's breakneck pace.

Clearly part of Mr. Gingrich's autumn end-game strategy is to force the White House to accept much of this agenda--many parts of which President Clinton has vowed to veto--by holding an increase in Federal debt limit hostage. Without an increase in the limit, the Government will be unable to meet many of the payments due in November for Social Security, military pay and interest on the Federal Government's $4.9 trillion in debt.

Such confrontational techniques have been used in the past. But is was highly unusual for a high Government leader to suggest, as Mr. Gingrich did today, that default on Government payments was not beyond the pale.

`I don't care what the price is,' he said in his speech. `I don't care if we have no executive offices and no bonds for 60 days--not this time.'

Without concessions from the White House across the board, he said, there will not be any increase in the debt ceiling. `And we'll see how long they will last,' he added.

Administration officials were still trying tonight to figure out how seriously to take Mr. Gingrich's comments. A few months ago, the Speaker was forced to back away from his off-the-cuff suggestions that the United States should recognize Taiwan as an independent country, a step that would lead to a breach with China.

But Congress has little direct influence over foreign policy. By contrast, its control of the Government's purse strings gave added force to Mr. Gingrich's remarks. Indeed, the Speaker's comments drew a quick and harshly worded response from Treasury Secretary Robert E. Rubin. `The President won't be blackmailed by the use of the debt limit as a negotiating lever,' he said in a telephone interview from Miami, where he was giving a speech tonight.

`It would be unprecedented and unwise for anyone in a position of authority to dismiss the consequences of default on the debt of the United States of America for the first time in our history,' he added. `Even the appearance of a risk of default can have adverse consequences, and a default itself would increase the cost of debt for the United States Government for many, many years to come. A sovereign country's credit-worthiness is a precious asset not be sacrificed under any circumstances.

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