Treasury Secretary Timothy F. Geithner said lawmakers must raise the federal borrowing limit in the first quarter of 2011 or risk a default on U.S. debt and a loss of access to global credit markets.
A failure to act would cause “catastrophic damage to the economy, potentially much more harmful than the effects of the financial crisis of 2008 and 2009,” Geithner said in a letter to Speaker of the House John Boehner, Senate Majority Leader Harry Reid and all other members of Congress. Lawmakers should act before a default becomes “imminent” because damage from even a short-term disruption “would last for decades.”
The Treasury estimates the debt limit could be reached as early as March 31, and “most likely” between that date and May 16. The limit stands at $14.29 trillion, leaving about $335 billion of “headroom,” Geithner’s letter said.
Boehner, a Republican from Ohio, said in a statement Congress needs to pair a debt-limit increase with spending cuts and changes to a “broken” budget process. He said the country can’t afford default or to “recklessly” keep borrowing.
“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,” Boehner said.
Geithner said that even with the kinds of spending cuts under discussion, like reverting to spending levels from fiscal year 2008, “the need to increase the debt limit would be delayed by no more than two weeks.”
The Treasury chief also said his department’s toolkit of emergency measures, such as tapping some government retirement funds and suspending some types of intergovernmental lending, would delay a debt ceiling breach “by several weeks.” At that point, he said, “no remaining legal and prudent measures” would be available and the U.S. would start to default.
Obama administration officials said they want to separate the debt limit from other fiscal-policy concerns. In a briefing with reporters today, a Treasury official predicted Congress would act to avert a crisis.
The debt limit should be resolved without being tied to long-term fiscal issues including spending and taxes, the Treasury official told reporters. Lawmakers will probably agree to raise the limit because of the consequences of the idea that the U.S. could default, the official said.
The U.S. had a $1.3 trillion budget deficit in fiscal year 2010, which ended Sept. 30. President Barack Obama’s debt-reduction panel failed last month to agree on recommendations for ways to reduce the annual deficit to about $400 billion in 2015.
Lawmakers are likely to wait “until the last minute” to pull back from the brink, said Stephen Stanley, chief economist at Pierpont Securities LLC. He predicted the House would seek to win concessions from the Senate and the White House by using the debt ceiling as leverage.
“Usually, the debt limit hike is more of a rhetorical than substantive debate, a painful vote that has to be done but nothing more than an opportunity to score political points,” Stanley said in an e-mail to Bloomberg. “This time, obtaining passage will be more complicated because it will be tied to substantive budget policy.”
The White House declined to respond directly to Boehner’s statement and pointed to comments by spokesman Robert Gibbs today on MSNBC’s “The Daily Rundown.”
Last year, Boehner said the government is “going to have an adult conversation around the debt ceiling,” Gibbs said on the program, according to a transcript. “We’re going to have to -- because Republicans and I think the speaker understands, he’s got responsibilities.”
Gibbs wouldn’t rule out linking a debt-ceiling vote to restrictions on spending, saying the conversation “is going to start before and end well after the debt-ceiling vote about how we get our fiscal house in order.”
House Budget Committee Chairman Paul Ryan said a short-term debt ceiling increase may be part of the GOP strategy to force spending control. Regarding Obama, he said it’s “his choice” if he were to refuse to sign a bill that contained a debt-limit increase, creating the risk of default. He said lawmakers and the administration can negotiate how long any debt ceiling increase might last.
“Do I want to see this nation default? No,” Ryan said at a National Press Club event today. “I want to see that we get substantial spending cuts and spending controls in exchange for raising the debt ceiling.”
Ryan said he would not support a “naked” debt limit increase. “Nobody likes brinksmanship, but what we really don’t like is runaway spending that’s threatening this country,” he said.
Geithner’s letter tackles Republican “misconceptions” that the debt ceiling is tied to spending cuts, said Stan Collender, a former congressional budget aide and now managing director of Qorvis Communications in Washington. “The Treasury Secretary is saying in this letter that, when it comes to the debt ceiling, the GOP is wearing no clothes,” he said.