Geithner Warns Lawmakers On US Debt Limit
January 12th, 2011
The Wall Street Journal
By: Meena Thiruvengadam and Jeffrey Sparshott
The U.S. could reach its debt limit of nearly $14.3 trillion as early as March 31, Treasury Secretary Timothy Geithner said Thursday.
Geithner in a letter to lawmakers said failure to raise the debt limit could “precipitate a default by the United States” and have catastrophic economic consequences–potentially more harmful than the financial crisis in 2008 and 2009.
The letter received a cool reception on Capitol Hill.
“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,” Republican Speaker of the House John Boehner said.
Boehner, leading a new Republican majority in the House, said spending cuts remained a top priority lawmakers.
The Treasury Department estimates that the U.S. could reach its debt limit as soon as March 31 and probably no later than May 16. The exact date depends on the rate of economic growth, tax receipts and other factors.
“This means it is necessary for Congress to act by the end of the first quarter of 2011,” Geithner said in the letter.
Geithner is pushing lawmakers to lift that ceiling for the sixth time in less than four years. Lawmakers last increased the debt ceiling almost a year ago.
But by Monday, the federal debt subject to that ceiling stood at around $13.95 trillion, giving the government just $355 billion before it would be legally prohibited from borrowing to pay its financial obligations.
A Treasury official said the administration is hoping to separate the debt ceiling increase from the debate on spending. And in his letter, Geithner said deep spending cuts would delay reaching the ceiling by no more than two weeks.
Boehner, though, emphasized the importance of spending cuts.
“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,” he said.
Failure to raise the U.S. debt ceiling could cast doubt on the U.S. government’s ability to meet its obligations and send shockwaves through the bond market.
“Default would have prolonged and far-reaching negative consequences on the safe-haven status of Treasurys and the dollar’s dominant role in the international financial system,” Geithner said.