UPDATE 3-Obama aide: Debt limit fight could be "catastrophic"

* Goolsbee says Republicans “playing chicken” on U.S. debt

* Republicans push to cut spending to 2008 levels

* Debate over debt ceiling could roil markets
(Recasts, adds detail throughout)

By Caren Bohan

WASHINGTON, Jan 2 (BestGrowthStock) – A fight over the U.S. budget
loomed on Sunday as a top aide to President Barack Obama warned
of catastrophic consequences if Republicans follow through on
threats to reject an increase in the nation’s borrowing limit.

Republicans, who will take control of the House of
Representatives this week, are demanding spending cuts to curb
the $1.3 trillion budget deficit and several have said they
would oppose a higher debt ceiling if Obama does not agree to a
range of painful cuts.

White House economic adviser Austan Goolsbee accused
Republicans of “playing chicken” with the nation’s financial
credibility.

“This is not a game. You know, the debt ceiling … is not
something to toy with,” Goolsbee told the ABC News program
“This Week.” “If we hit the debt ceiling, that’s …
essentially defaulting on our obligations, which is totally
unprecedented in American history.”

“The impact on the economy would be catastrophic. I mean,
that would be a worse financial economic crisis than anything
we saw in 2008,” he said.
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Without a vote by Congress to raise the limit on government
borrowing, the Treasury Department could bump up against the
current $14.3 trillion debt limit. Treasury has estimated the
limit could be reached during the first or second quarter of
this year.

Republican Rep. Michele Bachmann of Minnesota told CBS’
“Face the Nation” Republicans were not looking to shut the
government down but they do want to cut spending so the debt
limit does not have to be raised “continually.”

“At this point, I am not in favor of raising the debt
ceiling,” Bachmann said. “Congress has had a big party the last
two years. They couldn’t spend enough money and now they’re
standing back, folding their arms … taunting us about how are
you going to go ahead and solve this big spending crisis?”

“To not raise the debt ceiling could be a default of the
United States on bond and Treasury obligations,” said
Republican Senator Lindsey Graham of South Carolina. “That
would be very bad for the position of the United States in the
world at large,” Graham said. “But this is an opportunity to
make sure the government is changing its spending ways.”

Graham, speaking on NBC’s “Meet the Press,” said he would
not vote to raise the debt ceiling unless spending is cut back
to 2008 levels.

“The last election was about change, change that really
will make us something other than Greece,” he said.

INVESTMENT FOR GROWTH

Goolsbee, chairman of the White House Council of Economic
Advisers, said Obama is willing to make difficult choices on
spending cuts when he unveils his budget next month but also
said it was important not to “skimp” on investments like
education.

“We are going to have to make, in the medium run, a series
of tough choices, and the president’s not afraid to do that,
and I think you will see in his budget that he’s willing to,”
Goolsbee said.

Obama plans to unveil his annual budget proposal in
mid-February. After their triumphs in November congressional
elections, Republicans have vowed to roll back federal spending
to 2008 levels, with exceptions for the elderly, U.S. troops
and veterans.

The debt ceiling vote gives them some leverage in the
budget debate but Republicans run the risk of getting blamed if
the issue stirs turmoil in world markets.

Acknowledging that risk, incoming House of Representatives
speaker John Boehner has said it would be the responsibility of
Congress to deal with the debt ceiling “as adults.”

While signaling an openness to some budget cuts, Obama has
also indicated he will defend what he sees as crucial
priorities and has listed education and investment in research
and development among those.

“If you’re going to go skimp on important investments that
we need to grow, you’re making a mistake,” Goolsbee said.

He said it was important not to “conflate” the short-term
deterioration in the budget picture and long-term budget
challenges. Goolsbee blamed the short-run fiscal problems on
the economic crisis that Obama inherited when he took office.

“The reason the deficit is big this year is because we’re
coming out of the worst recession since 1929. That’s the
reason. The longer-run fiscal challenge facing the country is
important,” he said.

The White House economist said he saw some encouraging
signs in the U.S. labor market, including a recent drop in
claims for unemployment insurance.

The U.S. jobless rate, at 9.8 percent in November, was a
key factor behind Democrats’ mid-term election losses.
(Writing by Caren Bohan; additional reporting by Paul Eckert
and Vicki Allen; Editing by Todd Eastham)

UPDATE 3-Obama aide: Debt limit fight could be "catastrophic"