Rubin Urges Congress to Raise Debt Ceiling : Budget: Default is ‘unthinkable,’ Treasury secretary says. But he warns that even the appearance of that risk would roil the markets.

Treasury Secretary Robert E. Rubin, warning that even the appearance that the government will default on its debts would roil the financial markets and cause severe economic problems, urged Congress on Tuesday to act now to extend the debt limit.

While it’s “absolutely unthinkable” that the government--for the first time in its history--will default on its debts, he said, it would be irresponsible for Republicans to “create the appearance of a risk of default.”

If the government were to default on its debts, Rubin said, short-term ramifications would be substantial and “it would change the cost of funding of the federal government for years and years and years to come because it would attach a question mark that never existed before with respect to the federal debt. I don’t think that will happen.”

But, he said, Congress should raise the limit now to remove the issue from budget negotiations and “get it out of the market’s mind and out of the minds of the international markets.”

The government’s $4.9-trillion debt ceiling will be reached by the end of October, according to the latest Treasury calculations, and unless the limit is raised before then the government will be unable to borrow money to pay its debts.

Rubin’s comments, made at a breakfast interview at The Times Washington Bureau, brought a stinging rebuke from GOP leaders who accused him of using “scare tactics” to press Republicans in budget negotiations.

Scoffing at the warning, Rep. John R. Kasich (R-Ohio), chairman of the House Budget Committee, suggested that the government can function on a cash-flow basis without raising the debt ceiling and declared that business as usual in Washington without balancing the budget is “the biggest single thing we can do to sink the financial markets.”

“I’m presently doing an analysis of how the government would function on a cash-flow basis, and I’m convinced that we could pay a good chunk of our bills, including the outstanding debt instruments,” Kasich said.

Sen. Phil Gramm (R-Tex.), a presidential hopeful, said that “there’s no doubt the government can operate on a cash-flow basis” if it comes to that but that President Clinton can prevent a crisis over the debt-ceiling issue and a possible shutdown of government services by agreeing to the Republican plan for balancing the budget within seven years.

Approximately 160 Republican House members and two Democratic House members signed letters to Clinton and Senate and House leaders vowing to oppose raising the debt limit unless Clinton goes along with their budget-balancing proposal. Tony Blankley, spokesman for House Speaker Newt Gingrich (R-Ga.), said that Gingrich read the letter “with great interest” but does not want a crisis over the debt ceiling to arise and does not believe it will unless Clinton causes it.

The President has said he would not yield to GOP “blackmail” on the issue but would try to persuade Congress to pass his own plan to balance the budget within 10 years.

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Clinton opposes the GOP plan on grounds that its $270-billion cut in the growth of Medicare as well as other reductions are too steep and that its $245 billion in tax cuts would add to the deficit and are too heavily weighted in favor of upper-income taxpayers. He has said that he insists on a budget with smaller cuts in benefits and taxes and has vowed to veto the Republican plan.

Meanwhile, leaders of both parties are maneuvering to avoid blame for a government shutdown that they warn will occur if Congress fails to agree on a budget compromise and the government runs out of money, forcing it to discontinue all but essential services. Both sides seem to be proceeding on the assumption that a shutdown is inevitable and each is blaming the other for triggering it.

The Republicans have planned to send all 13 fiscal 1996 appropriations bills to Clinton by the end of the fiscal year on Sept. 30. But several of them will not be enacted in time. In addition, Clinton has threatened to veto several of the bills. Both sides will have to agree on some sort of continuing resolution for stopgap funding to keep the government running while they continue to struggle over the budget.

Clinton would sign a stopgap spending measure to keep the government running for 45 days if it “doesn’t have a lot of ideological baggage on it,” House Minority Leader Richard A. Gephardt (D-Mo.) told reporters Tuesday after a legislative strategy session with the President at the White House.

Rep. Robert L. Livingston (R-La.), chairman of the House Appropriations Committee, has said that the GOP, in an effort to prod Clinton to negotiate on Republican terms, might send the President a stopgap measure that would finance the government at very low levels.

Rubin said that it is Congress’ responsibility to provide a continuing resolution to avoid disrupting the economy and people’s lives. But Republicans are saying that Clinton should be blamed for any shutdown and that he could avoid the problem simply by agreeing to their budget proposal.

Some Republicans have indicated that they would accept a government shutdown if it helped underscore the threat the runaway budget deficits pose to the nation’s future. Kasich said he hopes a shutdown could be avoided but that “to continue the present course would be more irresponsible than to force a crisis to make things right.”

“I don’t want a train wreck, it’s irresponsible,” Gramm declared. “But if we have to have a collision to awaken the government to the fact that we’ve got to quit mortgaging the future, then I would reluctantly accept it.”