Bondholders of GM raise specter of bankruptcy

March 23, 2009 at 12:00a.m.

WASHINGTON (AP) — Congressional Republicans on Sunday predicted a doomsday scenario of crushing debt and eventual federal bankruptcy if President Barack Obama’s massive spending blueprint wins passage.

But a White House adviser dismissed the negative assessments, saying she is “incredibly confident” that the president’s policies will “do the job” for the economy.

In a TV interview, Obama himself laughed when discussing the dire state of parts of the economy — and ascribed his laughter to “gallows humor.”

White House Council of Economic Advisers chairwoman Christina Romer insisted that the nation’s flailing economy will be rebounding by 2010.

Administration officials — and the president himself — have taken a cheerier tone despite economic indicators that are anything but positive.

“I have every expectation, as do private forecasters, that we will bottom out this year and actually be growing again by the end of the year,” Romer said.

The president, in an interview that aired Sunday on CBS News’ “60 Minutes,” talked about the need to spend taxpayer money to save financial firms and the auto industry.

“I just want to say that the only thing less popular than putting money into banks is putting money into the auto industry,” Obama said with a laugh.

Interviewer Steve Kroft asked how that laughter might be perceived, given the economy’s troubles.

“There’s got to be a little gallows humor to get you through the day,” Obama said. “If you had said to us a year ago that the least of my problems would be Iraq, which is still a pretty serious problem, I don’t think anybody would have believed it.”

Republicans say Obama’s budget is no laughing matter.

Senate Republicans warned of deficits that could climb to $20 trillion in coming years and a weakened dollar if Obama and his Democratic allies get their proposed $3.6 trillion budget plan passed.

“The practical implications of this is bankruptcy for the United States,” said Sen. Judd Gregg, R-N.H. “There’s no other way around it. If we maintain the proposals which are in this budget over the 10-year period that this budget covers, this country will go bankrupt. People will not buy our debt; our dollar will become devalued.”

Sen. Richard Shelby of Alabama, the top Republican on the banking committee, said Obama would have to scale back his budget, given a Congressional Budget Office report Friday that the president’s budget would produce $9.3 trillion in deficits over the next decade. — more than four times the deficits of Republican George W. Bush’s presidency.

Shelby predicted that number could reach $20 trillion in coming years as Obama guides the country to “the fast road to financial destruction.”

North Dakota Democrat Kent Conrad, chairman of the Senate budget committee, acknowledged, “We cannot have debt pile on top of debt.” He added: “In the short term, yes, we have got to have added deficits and debt to give lift to this economy, but longer term, we have got to pivot.”

The CBO predicted a deficit of $2.3 trillion worse than what the administration projected. Romer downplayed those numbers.

“There is a question whether CBO is right. So we know that forecasts — both of what the economy is going to do and of what the budget deficits are going to do — are highly uncertain,” she said.

Asked the level of her confidence in an improving economy, Romer was concise: “Incredibly confident. ... We absolutely think that they are going to do the job for the American economy.”

Vice President Joe Biden’s economic adviser said the administration was open to negotiate with lawmakers. “We don’t expect these folks to sign on the dotted line,” Jared Bernstein said.

However, he added, “What we do expect and what we are going to stand very firm on, because this president, this vice president have made this clear, that there are these priorities that brought them to the dance here: energy reform, health care reform, education, all done in the context of a budget that cuts the deficit in half over our first term.”

Bernstein and Conrad spoke on ABC’s “This Week.” Romer spoke on “Fox News Sunday” and CNN’s “Face the Nation.” Shelby spoke on “Fox News Sunday.” Gregg appeared on CNN’s “State of the Union.”