By Mark Felsenthal and Matt Spetalnick
WASHINGTON (Reuters) - President Barack Obama on Monday rejected any negotiations with Republicans over raising the U.S. borrowing limit, accusing his opponents of trying to extract a ransom for not ruining the economy in the latest fiscal fight.
At a White House news conference called to promote his position on the budget, Obama vowed not to trade cuts in government spending sought by Republicans in exchange for raising the borrowing limit.
"What I will not do is to have that negotiation with a gun at the head of the American people," he said.
With an agreement to prevent the economy falling over a "fiscal cliff" barely two weeks old, Washington has already begun skirmishing over a new fiscal issue: the debt ceiling, which fixes a limit on how much the government can borrow.
The United States could default on its debt if Congress does not increase the borrowing limit, a prospect Federal Reserve Chairman Ben Bernanke warned against in separate comments on Monday.
Obama has tangled repeatedly with Congress over budget and spending issues, and on Monday he said Republicans would bear the responsibility for the consequences of a default.
"They can act responsibly, and pay America's bills or they can act irresponsibly, and put America through another economic crisis," he said. "But they will not collect a ransom in exchange for not crashing the American economy."
Republicans want Obama to cut some spending to rein in the deficit before they agree to raise the debt limit again.
Obama must get "serious about spending and the debt limit is the perfect time for it," Senate Republican leader Mitch McConnell said. "The American people do not support raising the debt ceiling without reducing government spending at the same time," said Republican John Boehner, the House of Representatives speaker.
The last debt ceiling fight, in 2011, upset world financial markets. Obama cast the borrowing issue as one that will affect many Americans and sensitive industries.
"If congressional Republicans refuse to pay America's bills on time, Social Security checks and veterans' benefits will be delayed. We might not be able to pay our troops, or honor our contracts with small business owners. Food inspectors, air traffic controllers, specialists who track down loose nuclear material wouldn't get their paychecks," he said.
Obama reminded Republicans than he won the November election partly on his approach to fiscal issues.
The debt limit is one of a trio of deadlines looming around the end of February, including automatic deep spending cuts that were temporarily put off in the "fiscal cliff" deal, and the end of a stopgap government funding measure.
A number of Republicans have said they would be willing to allow a U.S. debt default or a government shutdown to force the Obama administration to accept deeper spending cuts than the White House would like.
Obama's unexpected news conference could have been a pre-emptive strike aimed at influencing strategy sessions among Republican lawmakers scheduled for later this week.
The Treasury Department warned on Monday that the United States will run out of ways to prevent a default in mid-February or early March if the $16.4 trillion ceiling on borrowing is not raised.
NOT A "DEADBEAT NATION"
Obama said he would agree to talk about steps to trim the U.S. budget deficit, but made clear he wants to keep that discussion separate from the debt ceiling increase.
"The issue here is whether or not America pays its bills," he said. "We are not a deadbeat nation. And so there's a very simple solution to this: Congress authorizes us to pay our bills."
He held to his position that deficit reduction should include measures to raise revenue and not come from spending cuts alone.
Republicans have rejected that approach, saying the "fiscal cliff" deal, which raised taxes for the wealthy while maintaining low tax rates for most Americans, should have put to rest any more discussion over tax increases.
Fiscal issues loomed large during what was the final news conference of Obama's first term, which came a week before an inauguration ceremony that will launch his next four years.
Fights with Congress over taxes and spending have overshadowed much of his domestic agenda during most of the last two years, with the president facing legislative gridlock that shows little sign of abating.
Obama raised the specter of a severe setback to the U.S. economy if congressional Republicans persist with the threat of a debt default.
"It would be a self-inflicted wound on the economy," he said. "Even entertaining the idea of this happening, of the United States of America not paying its bills, is irresponsible. It's absurd."
Treasury Secretary Timothy Geithner, top White House economic adviser Gene Sperling and Obama senior adviser Valerie Jarrett later held a conference call with three dozen business leaders to discuss the president's fiscal plans and insist that Congress must raise the debt limit "without drama or delay," a White House official said.
Participants included Honeywell International Inc CEO David Cote, Evercore Partners chairman Roger Altman, Goldman Sachs Group Inc chief executive Lloyd Blankfein, Marriott International Inc chief executive Arne Sorenson, AT&T Inc CEO Randall Stephenson, Xerox Corp chief Executive Ursula Burns, IBM CEO Ginni Rometty and Deloitte LLP's U.S. chief executive, Joe Echevarria.
(Additional reporting byu Matt Spetalnick, Jeff Mason and Steve Holland, Editing by Alistair Bell and Christopher Wilson)