Geithner Says Delaying Debt Payments ‘Deeply Irresponsible’
U.S. Treasury Secretary Timothy F. Geithner said delaying some government payments instead of raising the $14.3 trillion federal debt limit would be “deeply irresponsible” and reiterated that the ceiling “must be increased to protect America’s creditworthiness.”
Failure to raise the limit “would have painful implications for people in every walk of American life,” Geithner said in a letter to Senator Jim DeMint, a South Carolina Republican. Geithner’s letter, dated yesterday and released today by the Treasury Department, was in response to a suggestion by DeMint last month that the U.S. could pay only interest on the debt while delaying or stopping other payments.
“This ‘prioritization’ proposal advocates a radical and deeply irresponsible departure from the commitment by presidents of both parties, throughout American history, to honor all of the commitments our nation has made,” Geithner said. In a separate letter to another lawmaker today, Geithner cited a 2010 comment in which DeMint was quoted as comparing the debt limit to a credit-card charge, saying, “You have to pay it.”
Republican lawmakers including Senator Pat Toomey of Pennsylvania and Representative Michele Bachmann of Minnesota have discounted the risk of a government default as they encourage members of their party to withhold their votes for increasing the debt ceiling unless spending-cut conditions are met. The Treasury Department has said the U.S. risks defaulting on its debts starting Aug. 2 unless Congress raises the limit.
‘Unacceptably Risky’
DeMint’s proposal “is based on an untested and unacceptably risky assumption: that if the United States were to continue to pay interest on its debt -- yet failed to pay legally required obligations to its citizens, servicemen and women, and businesses -- there would be no adverse market reaction and no damage to the full faith and credit of the United States,” Geithner said. DeMint and 16 other Republican senators made the suggestion in a letter last month to Geithner.
“You are also mistaken when you state that Treasury has ‘prioritized’ payments in the past,” Geithner wrote. “This is false. Never has Treasury failed to meet any obligation as a result of a debt-limit impasse, nor has Treasury ever ‘prioritized’ payments. Congress has never failed to raise the debt limit when necessary.”
DeMint, in a response sent by e-mail today, said Geithner’s “approach to dealing with the looming debt crisis is to take his hands off the wheel and let the car careen over the cliff.”
Numerous Tools
“He has numerous tools at his disposal to avoid default, but his refusal to explore all options and just play chicken with the federal debt is deeply irresponsible,” DeMint’s response said.
In another letter today, Geithner told Senator Ron Johnson, a Wisconsin Republican, that failing to raise the limit “would have the perverse effect of increasing the government’s borrowing costs and worsening our fiscal challenges. Default, or even the perception that default is likely, would increase rates on Treasury securities, which would significantly increase the cost of paying interest on the national debt.”
Geithner cited comments from lawmakers, including one from DeMint last year: “You don’t have much choice if you charge something on your credit card,” Geithner quoted DeMint as saying. “You have to pay it, and that’s effectively what this debt limit is.”
Separately, the International Monetary Fund said today that global markets will suffer if Congress fails to raise the debt ceiling.
Debt Ceiling
“The federal debt ceiling should be raised expeditiously to avoid a severe shock to the economy and world financial markets,” the IMF said in a report on the U.S. economy. The report said a failure to reach a budget and debt compromise could result in a “sudden increase in interest rates and/or a sovereign downgrade.”
Standard & Poor’s in April put the U.S. government on notice that it risks losing its top credit rating unless policy makers agree on a plan by 2013 to reduce budget deficits and the national debt.
To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net.
To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net
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