Upping the ante over the increasingly contentious issue of the debt ceiling, Treasury Secretary Timothy Geithner today warned Congress that causing the United States to default by not raising it would have "catastrophic consequences that would last for decades."
The U.S. has $13.95 trillion in outstanding debt and a ceiling of $14.3 trillion. But that headroom will evaporate quickly, according to a letter Geithner sent to congressional leaders, and the government could bump up against the limit as early as the end of March or as late as May 16.
The missive comes as Republicans appear increasingly likely to try to use the issue as leverage to force spending-cut concessions by congressional Democrats and the Obama administration.
Indeed, House Speaker John Boehner, R-Ohio, reacted coolly today to the administration’s notification of its intent to formally request an increase in the nation’s debt limit, and warned that the new House Republican majority will not go along with the request unless there is some meaningful action to cut spending.
“Spending cuts -- and reforming a broken budget process -- are top priorities for the American people and for the new majority in the House this year, and it is essential that the president and Democrats in Congress work with us in that effort,” said Boehner. “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.
“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."
Boehner’s remarks come as he has publicly acknowledged that some within the House GOP ranks -- including many freshmen members -- are opposed to raising the debt ceiling. But he also has suggested it is an issue that must be dealt with.
On Wednesday, the new Republican-led House ushered in a rule change that will allow it to force a separate vote on raising the debt ceiling, further ensuring that the issue will take center stage in the coming months. Past Congresses approved debt-ceiling increases automatically as part of the budgeting process.
Treasury officials said they have the ability to delay the day of reckoning up to eight weeks more through measures such as suspending reinvestment of a retirement fund for federal employees, but after that point, the government would begin to default on its obligations.
What precisely that would mean made up much of the letter, sent officially in response to a request for information from Senate Majority Leader Harry Reid, D-Nev. Geithner took the tone of a lecturing parent, alternating between confidence that Congress would never vote on such an "unthinkable" course of action and harrowing descriptions of just how dire the consequences would be if it did.
In a series of ominous bullet points, Geithner listed a series of consequences that could be "much more harmful than the effects of the financial crisis." These included higher borrowing costs across the board, since U.S. Treasury rates are used as benchmark borrowing rates in so much of the economy.
He warned that default would damage the dollar's current role as a reserve currency in the global economy, which could permanently raise interest rates and stunt investment. Geithner then listed an array of government programs -- including military salaries and Social Security, Medicare, and unemployment benefits -- that could see a full stop or reduced funding in the event of default.
"For these reasons, any default on the legal debt obligations of the United States is unthinkable and must be avoided," Geithner concluded. "It is critically important that Congress act before the debt limit is reached so that the full faith and credit of the United States is not called into question."
This article appears in the January 6, 2011 edition of National Journal Daily PM Update.