Dangerous Game on Debt Extension : Armey’s threat of federal default has far reach

It’s true in Washington and it’s true in the smallest burg: Politics is about using what you have to your advantage. But there ought to be a limit on what you’re willing to use, even in Washington. House Majority Leader Dick Armey’s latest tactic hits that limit. The Texas Republican said this week that Congress will not raise the nation’s borrowing authority to pay government bills unless President Clinton accepts a “substantial” share of the conservative GOP agenda. House Speaker Newt Gingrich is now saying the same thing. The threat of a national default could have repercussions far beyond U.S. borders, should the loose talk scare investors.

For a party that preaches greater fiscal accountability, what could be more contrary than the threat to undermine the nation’s full faith and credit? Investors must have confidence that the United States will honor its Treasury bills and bonds and other debt.

Treasury Secretary Robert E. Rubin has been been paying U.S. obligations by diverting money from two retirement funds for federal employees in order to prevent a default. The Treasury revised the date on which the United States would no longer be able to fulfill its financial obligation to Feb. 29 or March 1 from Feb. 15.

Armey wants to link the extension of the debt limit to a commitment from Democrats to eliminate the Commerce Department, and preventing the Treasury secretary from using trust funds of federal workers retirement programs. Just last week, Rep. John R. Kasich (R-Ohio), the chairman of the House Budget Committee, put no political conditions on how the government is to pay its debts. And this week a leading Senate Republican, Trent Lott of Mississippi, said the debt limit measure would not be saddled with conditions that would provide Clinton an excuse to veto it.

Enter Gingrich, who agrees with Armey. But to deflect attention from the division among Republicans over how aggressively to use the debt-limit card, he said congressional GOP leaders plan to pass a separate spending bill to keep the government operating until March 1. Noticeably missing is the voice of Sen. Bob Dole, who has taken a more credible, moderate stance in the budget impasse.

Can’t he whip Newt and company into line? The nation’s fiscal integrity could be at stake. New York investment banker Felix G. Rohatyn recently wrote that a U.S. default could create a catastrophe on two fronts: Politically the world would perceive a collapse in traditional U.S. government institutions and “financially a default could trigger a global financial crisis of unpredictable proportions.”

That should be sufficient warning to some elements of the GOP to abandon the rhetoric and attend to a clean extension of the debt limit. Armey: Seeking a political lever.