U.S. Treasury Secretary Timothy F. Geithner said Congress will raise the $14.3 trillion federal debt limit even after weeks of political posturing.
“You’re going to see a lot of political theater around this in the next couple of weeks,” Geithner said during a forum today at Dartmouth College in Hanover, New Hampshire. “There will be six episodes of failure before people do the right thing.”
House Majority Leader Eric Cantor and second-ranking Senate Republican Jon Kyl yesterday walked away from a seven-week-long negotiating effort led by Vice President Joe Biden on the budget and deficit. President Barack Obama will meet with Senate Democratic leader Harry Reid and Republican leader Mitch McConnell next week in an effort to revive talks, the administration announced today.
“There are a lot of people on both sides of the American political spectrum now that would rather have a fight than actually do something,” Geithner said at Dartmouth, where he graduated with a bachelor’s degree in 1983. Some have a “dangerous illusion that somehow if we defaulted on our debt, stopped paying our obligations, that would be a way to balance our budget,” he said.
“No responsible person believes that, and the leadership of the Congress understands that’s not possible,” he said.
Geithner said U.S. economic growth in the first half of the year was dampened by elevated oil prices, the consequences of the earthquake and tsunami in Japan and inclement weather in the U.S. He said growth is likely to pick up in the second half.
“We are going to avoid a default crisis because we are a country that meets its obligations,” Geithner, 49, told reporters earlier today in Manchester, New Hampshire, where he met with local business leaders. “We are also going to reach an agreement to try to bring down long-term deficits.”
“Longer term, the only way you can do this is to do it with balance,” Geithner said. “We need to have some very substantial savings across the government, across all parts of the U.S. government. You need to have some modest changes to revenues to find balance. There is no way to do it without that.”
House Speaker John Boehner today set out conditions for raising the debt ceiling, including spending cuts, no tax increases and a government spending overhaul. Democrats want to eliminate tax breaks for corporations including oil and gas companies, said Maryland Representative Chris Van Hollen, a Democratic participant in the Biden group.
The Treasury Department has said the U.S. risks defaulting on its debts starting Aug. 2 without an increase in the ceiling. Moody’s Investors Service this month said it will put the U.S. government’s Aaa credit rating under review for a downgrade unless there’s progress on increasing the limit by mid-July.
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.
So far, the concern about the deficit hasn’t driven U.S. borrowing costs to above-average levels. The yield on the benchmark 10-year Treasury note was 2.87 percent at 5:11 p.m. in New York and earlier touched 2.85 percent, the lowest level since Dec. 1. That’s below the average of 7 percent since 1980 and the average of 5.48 percent in the 1998 through 2001 period, according to Bloomberg Bond Trader.
Geithner, in an interview with CNBC today, said that with long-term U.S. economic growth of about 2.5 percent, the unemployment rate “will gradually come down.” Government data today showed the economy grew at a 1.9 percent pace in the first quarter, marking the start of what the Federal Reserve projects is a temporary slowdown in the recovery.
Geithner, in his remarks in Manchester, also said that “any feasible solution for Greece is going to have to combine some very tough economic reforms with some temporary financial assistance as a backstop to let those reforms work.”
European Union leaders vowed today to stave off a Greek default as long as Prime Minister George Papandreou pushes through a package of budget cuts next week, pledging to do whatever it takes to stabilize the euro economy.
“We have agreed that there will be a new program for Greece,” German Chancellor Angela Merkel told reporters at an EU summit in Brussels. “This is an important decision that says once again we will do everything to stabilize the euro overall.”