Failure to raise U.S. debt ceiling would have 'unthinkable' consequences, Treasury Secretary Geithner warns Congress
Seeking to raise the limit on the nation's growing debt, Treasury Secretary Timothy F. Geithner formally warned Congress on Thursday of "unthinkable" consequences for the economy and the nation's creditworthiness if lawmakers do not increase the level to reflect increased borrowing.
Geithner sent the warning in a letter to House and Senate leaders and every member of Congress as a showdown looms in the coming weeks over the U.S. debt ceiling.
Many Republicans in Congress -- including newly elected lawmakers backed by the Tea Party -- have said they oppose raising the debt limit above its $14.29-trillion level. As one of its initial actions Wednesday, the new Republican majority in the House voted to require a separate vote on raising the debt ceiling, which in the past has been included in the broader annual budget bill.
That's an indication that Republicans want a showdown over the debt ceiling, which many believe should not be raised so the government would be forced to curb its spending.
Geithner warned in his letter that such a move would be "deeply irresponsible."
He told lawmakers that the U.S. is currently about $335 billion below the debt ceiling and is estimated to need an increase as early as March 31. The date could be as late as May 16, depending on how much tax revenues are collected in the first part of the year. And the Treasury, as it has in the past, can take some "extraordinary measures" to delay reaching the debt limit for several weeks, such as suspending some investments, he said.
But without an increase in the debt limit, the U.S. government eventually would not be able to pay interest to those holding Treasury bonds, defaulting on that debt and "causing catastrophic damage to the economy, potentially more harmful that the effects of the financial crisis of 2008 and 2009," Geithner wrote.
The Treasury also would not be able to do any additional borrowing to pay budgetary obligations, forcing a partial shutdown of the government and further damaging U.S. creditworthiness. The U.S. has never failed to raise the debt ceiling, Treasury officials said.
"For these reasons, any default on the legal debt obligations of the United States is unthinkable and must be avoided," Geithner wrote. "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."
New House Speaker John Boehner (R-Ohio) said Thursday that any increase in the debt limit must be accompanied by "meaningful" spending cuts.
"While America cannot default on its debt, we all cannot continue to borrow recklessly, dig ourselves deeper into this hole, and mortgage the future of our children and grandchildren," Boehner said.
The debt ceiling provides a strong point of leverage for House Republican leaders. The Democratic-controlled Senate and White House can block any legislation they oppose, such as repeal of the healthcare overhaul. But the Obama administration needs the House to increase the debt ceiling, allowing Republicans to tie that action to spending cuts.
Treasury officials said Thursday that they were confident that the debt ceiling would be raised, noting that past disputes between the White House and Congess have always been resolved. Congress last raised the debt limit in February 2010.
-- Jim Puzzanghera
Photo: Treasury Secretary Timothy F. Geithner. Credit: Getty Images