In at least three letters to Congress since January, Treasury Secretary Tim Geithner has warned about the consequences if the United States were to default. Yesterday on “Meet the Press,” he aired those consequences to a wider audience. There was no panic in his voice that would spook the markets. But there was a sense of urgency in his tone and demeanor when moderator David Gregory asked for specifics on what would happen if the nation’s debt limit isn’t raised by Aug. 2. His answer made that much more urgent given House Speaker John Boehner pulling the plug on a long-term deal Saturday night, the short meeting at the White House meeting on Sunday evening and a new round of talks and presidential press conference on Monday.
On August 2, at that point we run out of the ability to borrow to meet our obligations. Remember, we spend — we have to borrow now 40 cents for every dollar we spend. Now, on August 2, if Congress hasn’t acted, we’re left with the cash we have and the cash we’re going to take in. And every week starting the week of August 2, we have to go out and finance roughly $100 billion in maturing obligations of the government. We make 80 million checks a month to Americans, 55 million people on Social Security benefits, millions more Americans on veterans benefits, Medicare, Medicaid, people who supply our troops in combat. Eighty million checks a month. So on August 2, we’re left with the cash on hand and the cash we take in. And we have to convince people to come and refinance $500 billion in maturing principal payments that come due in August.
I hope folks are finally paying attention. Failure to raise the national debt limit is not akin to a government shutdown. Whereas a government shutdown would prevent Social Security checks from being issued until the impasse were resolved, default would stop Social Security checks cold as the federal government moved first to pay the debts it has already incurred with the cash it has or will collect. The damage from a default would be far-reaching and long-lasting.
Republicans continue to balk over making tax increases part of the needed balanced approach in a deal to raise the debt ceiling while imposing fiscal discipline on the federal government. Such intransigence could lead to tax increases in different forms if the limit on the nation’s borrowing isn’t lifted by Aug. 2. “A default would impose a substantial tax on all Americans,” Geithner wrote in his Jan. 6 letter to Senate Majority Leader Harry Reid (D-Nev.). “Because Treasuries represent the benchmark borrowing rate for all other sectors, default would raise all borrowing costs.”
The Geithner letter points out that “Interest rates for state and local government, corporate and consumer borrowing, including home mortgage interest, would all rise sharply.” And it goes on to say, “Equity prices and home values would decline, reducing retirement savings and hurting the economic security of all Americans, leading to reductions in spending and investment, which would cause job losses and business failures on a significant scale.” As if that weren’t bad enough, default would ruin the dollar’s “dominant role in the international financial system,” which would jack up interest rates further for and reduce the willingness to invest in the United States.
On “Meet the Press,” Geithner squelched any talk that Aug. 2 is a fungible deadline or that President Obama could invoke Section 4 of the 14th Amendment, which notes that “The validity of the public debt of the United States . . . shall not be questioned.” Acknowledging that leaders in Congress understand that “failure is not an option,” Geithner said, “There is no credible way to give Congress more time. There’s no constitutional option. There’s no delay option. There’s no creative financial option. They have to act by the second.”
This echoes what Geithner told a House appropriations subcommittee when he was urging Congress to raise the debt ceiling as soon as possible. “There’s no alternative,” he said. That was in March. With 21 days left on the default clock, nothing has changed. There’s still no alternative. And there’s still no deal. Despite Sunday night’s meeting between President Obama and congressional leaders and the one set for Monday, not to mention Obama’s press conference later Monday morning to discuss the debt-deficit talks, “assume the crash position” remains a valid suggestion.