Geithner Says Failure to Raise Debt Ceiling Unthinkably Damaging

U.S. Treasury Secretary Timothy Geithner said today that Congress has “no option” other than approving an increase in the $14.3 trillion debt ceiling.

“It will be unthinkably damaging to the economy, much more damaging than even what we faced in that dark period of ’08 and ’09,” Geithner said in Chicago at the Clinton Global Initiative conference.

He said Congress has no choice and will raise the debt limit. The Treasury, which has projected that its borrowing authority will expire Aug. 2, plans to release an update on the debt limit tomorrow.

Senate Majority Leader Harry Reid, a Nevada Democrat, announced today that the Senate will cancel its July 4 recess to remain in session next week for debt-limit talks. Reid’s decision came after President Barack Obama said Congress shouldn’t be taking vacations while the issue is unresolved.

“We really have no option to go into a period where we don’t start paying our bills. Congress has no choice but to pass this and I’m sure they will,” Geithner said.

Geithner has signaled to White House officials that he’s considering leaving the administration once a debt limit agreement is reached, according to three people familiar with the matter. At the Clinton Global Initiative conference, Geithner said he will be at Treasury “for the foreseeable future.”

‘Yellow Light’

At a news conference yesterday, Obama criticized Republicans for the failure to reach an agreement on the debt limit.

“The yellow light is flashing,” Obama said, warning of dire consequences if Congress doesn’t raise the borrowing limit before Treasury’s Aug. 2 deadline.

The two sides are at a standoff over demands from the White House for tax increases and from Republicans for cuts in the Medicare health-insurance program for the elderly and other entitlements. Bipartisan talks on debt reduction, led by Vice President Joe Biden, collapsed last week.

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. Moody’s Investors Service this month said it will but the U.S. government’s Aaa credit rating under review for a downgrade unless there’s progress on increasing the limit by mid-July.

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