Geithner and top Fed officials discuss debt-ceiling options

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Treasury Secretary Timothy F. Geithner met Friday with Federal Reserve Chairman Ben. S. Bernanke and New York Fed President William C. Dudley to discuss what would happen if Congress does not raise the nation’s debt ceiling by an Aug. 2 deadline.

Geithner has been publicly confident that the $14.3-trillion debt ceiling would be raised in time to avoid a default on interest payments owed to holders of government securities. But Friday’s meeting at the Treasury Department indicated that there’s some nervousness as the White House and congressional leaders have been unable to strike a deal.

The Treasury Department said the meeting was not an indication that a deal is unlikely.

‘While we remain confident that Congress will raise the debt ceiling soon, officials from the Treasury, Federal Reserve Board and the New York Fed met today to discuss the implications for the U.S. economy if Congress fails to act,’ the department said in a statement issued after the meeting.

Bernanke and Dudley would be key players in dealing with a potential U.S. default. During the financial crisis in the fall of 2008, Geithner was president of the New York Fed and worked with Bernanke and then-Treasury Secretary Henry Paulson to try to contain the damage and deal with the fallout.

Earlier Friday, Geithner had breakfast with Paulson ‘to discuss the state of the economy, the ongoing efforts to find a balanced approach to deficit reduction and the need for Congress to enact a timely debt ceiling increase to avoid defaulting on the country’s obligations,’ the department said.

After the meeting, Paulson issued a statement urging Congress to increase the debt ceiling. He said that failing to do that ‘would do irreparable harm to our credit standing, would undermine our ability to lead on global economic issues and would damage our economy.’

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-- Jim Puzzanghera in Washington