Raise debt limit to avoid national catastrophe, Geithner warns Congress
Thursday, January 6, 2011; 8:07 PM
Treasury Secretary Timothy F. Geithner warned lawmakers Thursday that the national debt could hit the legal limit on borrowing as soon as March 31, and he urged quick action to avoid a government default that would spark "catastrophic economic consequences that would last for decades."
In a letter sent to every member of Congress, Geithner said the national debt stands at $13.95 trillion - $335 billion short of the limit on borrowing that Congress set last year. Unless Congress acts to raise the limit, the letter says, the United States will default on its debt, an unprecedented event that could destroy "millions of American jobs," cause interest rates to spike, damage the dollar, and halt payments to millions of Social Security recipients, veterans and active U.S. troops.
"Failure to increase the limit would be deeply irresponsible," Geithner wrote. "For these reasons, I am requesting that Congress act to increase the limit early this year, well before the threat of default becomes imminent."
The letter comes one day after Republicans took control of the House, their membership reinforced with new lawmakers who have vowed to block further borrowing, a top priority of the conservative tea party movement. Newly elected House Speaker John A. Boehner (R-Ohio) acknowledged Wednesday that default must be avoided, but he said Republicans would demand deep spending cuts and budget reforms in exchange for raising the limit on borrowing.
"The American people will not stand for such an increase unless it is accompanied by meaningful action by the president and Congress to cut spending and end the job-killing spending binge in Washington," Boehner said in a statement. "While America cannot default on its debt, we also cannot continue to borrow recklessly, dig ourselves deeper into this hole and mortgage the future of our children and grandchildren."
Senate Minority Leader Mitch McConnell (R-Ky.) told reporters that he views the debate over the debt limit as "an opportunity, actually, for us to come together and make some significant strides toward beginning to reduce our spending and debt."
Some Democrats, too, have said they would be reluctant to raise the limit above $14.3 trillion without a plan for balancing the budget. President Obama also is committed to deficit reduction, but Treasury officials said work on the deficit should occur separately from talks over extending the debt limit.
Geithner's four-page letter - which warns that default would spur "catastrophic damage to the economy, potentially much more harmful than the effects of the financial crisis of 2008 and 2009" - comes as a growing number of GOP lawmakers are declaring their intention to vote against a higher debt limit. Some are campaigning against it. Rep. Michele Bachmann (R-Minn.) has posted a petition on the Web site of her political action committee, encouraging voters to tell Congress that the "spending frenzy cannot continue. It's time to force our elected officials to stop spending cold turkey, and we can start by making sure they do not raise the debt ceiling."
Administration officials say such views appear to reflect a deep misunderstanding of the consequences of default, and the White House has in recent days sought to head it off. On the Sunday talk shows, Council of Economic Advisers Chairman Austan Goolsbee warned against "playing chicken with the debt ceiling," saying failure to increase the limit would spark "the first default in history caused purely by insanity." And on Thursday, the White House released remarks from a series of conservative commentators who agree that the debt ceiling must be allowed to rise.
Among those supporting the White House position is former Bush administration Treasury secretary Henry M. Paulson, who released a statement Thursday warning that inaction "is simply not an option."
"I applaud the commitment lawmakers have made to reduce spending and put the country on a more fiscally responsible path," Paulson said. "As they pursue smarter spending, it's also vital to protect America's creditworthiness, and therefore I'm confident Congress will act to increase the debt limit well before it is reached."
The Treasury cannot predict with certainty when that date will arrive. In his letter, Geithner said it is likely to occur between March 31 and May 16.
The Treasury could take steps to buy time, but those "exceptional actions" would delay default by no more than eight weeks, officials said.
Immediate budget cuts won't help much either, they said. The debt is an accumulation of obligations incurred over many years when the government ran budget deficits. "Even if Congress were immediately to adopt the deep cuts in discretionary spending of the magnitude suggested by some members of Congress . . . the need to increase the debt limit would be delayed by no more than two weeks," Geithner wrote.
Geithner did not specify how much additional borrowing authority he is asking Congress to approve. That decision is usually taken by lawmakers.