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Lew says stubborn Congress risks repeating U.S. fiscal wounds

U.S. Treasury Secretary Jack Lew testifies before a Senate Banking hearing on "The Financial Stability Oversight Council Annual Report to Co
U.S. Treasury Secretary Jack Lew testifies before a Senate Banking hearing on "The Financial Stability Oversight Council Annual Report to Co

WASHINGTON (Reuters) - U.S. Treasury Secretary Jack Lew on Sunday warned Congress against manufacturing a crisis over federal spending in the months ahead, as looming deadlines set the stage for a repeat of the political deadlock which two years ago triggered worldwide financial market turmoil.

In coming negotiations with Republicans, who control the House of Representatives, Democratic President Barack Obama will focus on ways to create economic gains for the middle class over spending cuts, Lew said.

"We have already done a lot of deficit reduction," he said in an interview on NBC. Lew spoke on four TV talk shows, setting out Obama's priorities ahead of an expected showdown this fall.

By early November, Congress must raise the legal limit on the country's borrowing authority or risk an unprecedented default on the government's debt.

A debt ceiling showdown in August 2011 between Obama and congressional Republicans sparked wild stock market swings and cost the United States its top-tier AAA credit rating.

"We need to get the debt limit extended in a way that doesn't create a crisis," Lew said.

Republicans see the debt ceiling as the their best leverage in winning a deal with Obama that would cut federal government spending to lower the deficit.

Lew, who was Obama's budget director in 2011, reiterated the president's stance that he would not consider short-term spending cuts, nor would he offset defense spending cuts with reductions in other government programs.

"The president has made crystal clear, he's not going to negotiate over the debt limit," Lew said in an interview on ABC.

The debt ceiling is one of two fiscal deadlines facing Obama and Congress. By October 1, they must agree on a stop-gap measure to keep the government funded or face a shutdown.

Republicans have eyed this budget deadline as a way to roll back steep spending cuts for defense programs. But that is not an option, Lew said.

"The across-the-board budget cuts that kicked in are not good policy," Lew said in a Fox News interview. "We think they should be replaced by sensible, alternative entitlement and tax reforms."

Congress is scheduled to leave town August 2 for a five-week recess.

Asked about the possibility of a federal response to Detroit's recent bankruptcy declaration, Lew threw cold water on any chances the struggling city will get federal aid.

"Detroit is going to have to work with its creditors on this," Lew told ABC.

(Reporting By Patrick Temple-West; Editing by David Storey)

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