WASHINGTON — Concern deepened in financial markets Tuesday about the potential for a U.S. default as President Barack Obama and House Speaker John Boehner clashed publicly without breaking an impasse over how to reopen the government and pay the nation's bills.
Short-term borrowing by the Treasury Department became twice as expensive Tuesday as it had been the day before, one of the most significant signs of alarm in the bond markets since the financial crisis of 2008.
The stock market, meanwhile, continued the steady slide that began in mid September, when Boehner, R-Ohio, embraced a strategy for using the budget battles to try to dismantle Obama's signature health care initiative. The Standard & Poor's 500-stock index fell 20.67 points to 1,655.45 on Tuesday. The Dow Jones Industrial Average dropped nearly 160 points to 14,776.53 and has lost nearly 6 percent of its value since hitting a one-year high Sept. 18.
In a news conference, Obama warned that default would be "insane, catastrophic, chaos," and demanded that Boehner take the weight of that threat off the U.S. economy.
Once that happens, Obama said, "I am happy to talk with him and other Republicans about anything." But Obama said he also told Boehner in a telephone call Tuesday morning that "having such a conversation, talks, negotiations shouldn't require hanging the threats of a government shutdown or economic chaos over the heads of the American people."
An hour later, Boehner fired back that Republicans will not yield until Obama comes to the bargaining table.
"I didn't come here to shut down the government, and I certainly didn't come here to default on our debt," Boehner told reporters at the Capitol. But Obama, he said, is seeking "unconditional surrender by Republicans" before "he'll sit down and talk. That's not the way our government works."
Both men spoke in calm tones, striving to appear reasonable. But with the shutdown in its second week and a critical deadline for government borrowing just eight days away, anxiety was building in Washington and on Wall Street.
Just last month, investors were willing to make short-term loans to the U.S. government virtually for free. On Tuesday, the one-month Treasury bill, which paid 0.13 percent interest on Monday, spiked to 0.27 percent — the highest rate since 2008. Borrowing for slightly longer durations has also become more expensive.
"What we're seeing is a greater concern that the Congress and the White House will not be able to reach an agreement … to avoid tripping over the debt ceiling," said John Canavan, an analyst with Stone & McCarthy Research.
The national debt hit the $16.7 trillion legal limit in May. Treasury Secretary Jack Lew has since employed emergency measures to conserve cash. Lew will exhaust those measures Oct. 17.
Lew has declined to say when the United States is likely to begin missing payments, the definition of default. But independent analysts say it would happen no later than Nov. 1, when the Treasury Department must pay out nearly $60 billion to Social Security recipients, Medicare providers, civil service retirees and military service members.
Economists, financial analysts and most policymakers agree that default would be catastrophic because U.S. Treasury bonds form the backbone of global financial markets. "It could well be that what is now a recovery would turn into a recession or even worse," said Olivier Blanchard, the top economist at the International Monetary Fund.
Speaking to reporters at the White House, Obama stressed that the consequences of congressional inaction on the debt limit would be far more devastating than lawmakers' failure to end the government shutdown that began Oct. 1.
Boehner has insisted that the House will not agree to reopen the government or raise the debt limit without concessions from Democrats. Obama challenged him to test that assertion by putting legislation to a vote.
"Let every member of Congress be on record," Obama said. "And if it fails and we do end up defaulting, I think voters should know exactly who voted not to pay our bills, so that they can be responsible for the consequences that come with it."