U.S. Treasury Secretary Timothy F. Geithner said it would be “quite harmful” if Congress moved forward with proposed debt-limit legislation from U.S. Senator Pat Toomey, a Republican from Pennsylvania.
Geithner repeated his department’s view it’s “unworkable” to give priority to payments on the national debt to avoid a collision with the $14.29 trillion debt ceiling. Toomey’s plan wouldn’t protect military salaries, pay for government workers or take care of other contractual U.S. payments, he said. It’s “factually incorrect” to say the U.S. has given priority to certain types of payments in the past, he also said.
“If payment of these obligations were abruptly stopped, the world would recognize it as a first-ever failure by the United States to meet its commitments,” Geithner said in today’s letter. Federal Reserve Chairman Ben S. Bernanke said separately in Washington today that lawmakers shouldn’t use the debt limit as a “bargaining chip” in debates over fiscal policy.
Republican lawmakers are stepping up calls for budget cuts as they debate how and when to raise the debt limit, while the Obama administration has sought to keep the focus on longer-term budget consolidation. The U.S. has racked up deficits of more than $1 trillion for each of the past two years, and bond dealers predicted deficits of $1.363 trillion in fiscal 2011 and $1.107 trillion in 2012 in a survey provided to the Treasury.
Geithner’s department said yesterday it expects the debt ceiling to be reached between April 5 and May 31, compared with the range of March 31 to May 16 it predicted early last month. The department will update its forecast again in the first week of March, and it said a range of technical measures could provide up to eight weeks of additional time if necessary.
Toomey’s proposal would require that in the event the government reaches its legal debt limit, the Treasury Department first reimburse the holders of U.S. debt before meeting other obligations. The approach is designed to avert a U.S. government default, essentially giving opponents of raising the debt limit more time and leverage to press for cuts in federal spending as a condition of supporting the boost.
“Failing to raise the debt ceiling is not a desirable situation and would be disruptive, but the worst thing we can do is simply continue the irresponsible deficit spending that jeopardizes our economic future,” Toomey, who won his seat in November with support from the Tea Party movement, said in a statement on his measure.
Geithner’s letter today follows a Jan. 21 phone call to Toomey on the same topics, and Deputy Treasury Secretary Neal Wolin issued a statement that day calling the plan “unworkable.” White House Chief of Staff William Daley yesterday cautioned that a failure by lawmakers to raise the debt limit “would have enormous potential negative impacts” on the financial system.
“To sort of play this typical Washington game of threatening and trying to leverage off the debt would be very dangerous for the markets,” he said at the Bloomberg Breakfast in Washington.
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