Markets believe US will avoid default as talks make progress

Austan Goolsbee, President Barack Obama's top economist, said markets are confident the US will avoid a default and that talks with congressional leaders on cutting the nation's long-term debt are making progress. "The negotiations are going reasonably well," Goolsbee, chairman of the White House Council of Economic Advisers, said in an interview on Bloomberg Television's Political Capital with Al Hunt, airing this weekend. "I think we'll find a solution." Vice-President Joe Biden plans three meetings with lawmakers this week in an effort to strike a deal by July 4 that would curb the federal budget deficit and clear the way to raise the $14.3 trillion (Dh52.5 trillion) debt limit. Treasury Secretary Timothy F. Geithner has said the US will run out of options to avoid a default by August 2. Pushing the negotiations up against that date "plays with fire," Goolsbee said. "I don't think the markets think we're going to default on Treasuries or any of the other government obligations," Goolsbee said. "We're a nation that pays our bills." Pressure is building on debt negotiators to deliver an agreement. Moody's Investors Service last week said if there's no progress on raising the debt limit in coming weeks, it expects to place the government's rating under review for a possible downgrade. In April, Standard & Poor's downgraded its US debt outlook to negative. US stocks extended a sixth weekly drop on concern the global economy is slowing. The Dow Jones Industrial Average lost 172.45 points, or 1.4 per cent, to 11,951.91 in New York, its first dip below 12,000 since March, and the Standard & Poor's 500 Index fell 1.4 per cent to 1,270.98. With concerns growing that the economic recovery is weakening, Goolsbee said the administration is focusing on ways to spark more hiring by businesses. "As we're shifting to this transitioning to a growth phase, we want to be for any policies that are going to help incentivise and stand up the private sector to drive the recovery," Goolsbee said. The president won't press for steps "that are of the traditional stimulus form," such as the $830 billion tax and spending package the administration pushed through Congress in 2009, he said. The White House has taken steps such as trimming regulations and providing help for entrepreneurs, he said. Among the measures Obama's advisers have discussed is a temporary cut in the employer contribution to payroll taxes, people familiar with the matter said earlier this week. A reduction in the employee portion of the tax was part of a deal the administration reached with Congress last December. Goolsbee said that is "something we ought to be open to looking at." Obama is meeting with members of his Council on Jobs and Competitiveness, which includes corporate executives, in Raleigh, North Carolina tomorrow to discuss growth. New proposals for boosting the recovery may come out of those meetings, Goolsbee said. Recent economic data have added pressure on the administration. Payrolls grew at the slowest pace in eight months in May, Labour Department figures released on June 3 showed. The 54,000 rise in jobs followed a 232,000 gain in April and was below the 165,000 median increase forecast by economists in a Bloomberg News survey. Manufacturing grew at its slowest pace in more than in a year in May, according to Institute for Supply Management data. Consumer spending, which accounts for 70 per cent of the economy, rose less than forecast in April as households felt the pinch of grocery and energy costs, a Commerce Department report showed. Goolsbee attributed the slowdown to "some headwinds" including high fuel prices and the effects of supply chain disruptions on US manufacturers following the Japanese earthquake. Goolsbee said he would be resigning from the administration and returning to the University of Chicago this summer. From / Gulf News