Raising Debt Ceiling Is Obama's New Term Priority

After a day of Inaugural high ceremony, US politicians are turning their attention to the urgent need to reach a deal on raising the government’s debt ceiling and thereby avoid the risk of a disastrous default.

Congress must agree by the end of February to increase the limit on how much the nation can borrow so the government can service its debt.

President Obama has vowed he would not bargain over the debt limit and his inaugural speech showed he believes he has the upper hand.

"We must make the hard choices to reduce the cost of health care and the size of our deficit. But we reject the belief that America must choose between caring for the generation that built this country and investing in the generation that will build its future," he said.

"The commitments we make to each other - through Medicare, and Medicaid, and Social Security - these things do not sap our initiative; they strengthen us. They do not make us a nation of takers; they free us to take the risks that make this country great."

If Congress fails to agree a deal, the country could default on obligations like payments to bondholders by as early as February 15.

That would deal a heavy blow to global financial markets and undermine confidence in the world’s largest economy.

However, Republicans do appear ready to raise the debt ceiling temporarily and have also backed away from their insistence on deep spending concessions in exchange for a deal.

House leaders have unveiled legislation to permit the government to continue borrowing money until May 18. It is slated for a vote on Wednesday.

The current debt limit is $16.4trn (£10.3trn), and while the proposed legislation does not set a specific limit, it would allow sufficient automatic increases to stave off a default.

The measure marks a change in strategy for House Republicans, but the legislation is also aimed at prodding Senate Democrats to pass a budget after almost four years of failing to do so.

It would withhold the pay of lawmakers in either House or Senate if their chamber fails to pass a budget this year.

House Republicans have passed budgets for two consecutive years, but the Senate has not passed one since President Obama's first year in office.

Democrats have generally reacted coolly to the three-month extension.

It would take the debt limit issue off the table for several months but leave other choke points in place.

They include sharp, across-the-board spending cuts that would start to strike defence and domestic programmes alike on March 1 and the possibility of a partial government shutdown with the expiration of a temporary budget measure on March 27.

But failing to meet those deadlines would have far less serious consequences than defaulting on US obligations.

Republicans hope the need to deal with issues like the across-the-board cuts will cause Democrats and Mr Obama to agree to specific spending cuts.