Politico...
Tim Geithner warns on
debt ceiling
By Jake Sherman
5/14/11
Failing to raise the debt ceiling will cause a host of things
congressional Republicans want to avoid, Treasury Secretary Timothy
Geithner said.
It would increase unemployment, make it harder for new business owners
to get loans, cause soldiers to go unpaid and “push us into a double
dip recession,” he wrote in a letter to Sen. Michael Bennet (D-Colo.)
Friday.
“Treasury securities set the benchmark interest rate for a wide range
of credit products, including mortgages, car loans, student loans,
credit cards, business loans and municipal bonds,” Geithner wrote.
“Accordingly, an increase in Treasury rates would make it more costly
for a family to buy a home, purchase a car, or send a child to college.
It would make it more expensive for an entrepreneur to borrow money to
start a new business or invest in new products and equipment.”
Geithner also says that failing to increase the nation’s borrowing
capabilities would increase “the government’s debt burden”— the precise
thing Republicans want to avoid this year.
The stakes are high in this legislative battle. Speaker John Boehner
(R-Ohio) and Majority Leader Eric Cantor (R-Va.) both say that Congress
won’t increase the debt ceiling unless it’s accompanied by major
spending cuts. They’ve also signaled they’re looking to reform
Medicare, institute budget reform and find spending cuts to completely
offset the debt-limit raise.
Another factor is also at play: Republicans in both the House and
Senate have questioned how serious it would be to not raise the debt
ceiling. Treasury has the ability to shuffle around funds, which has
emboldened Republicans to say that the Obama administration is
overstating the consequences of failing to move legislation to increase
the limit.
Geithner in his letter said that not moving legislation to up the
statutory cap on borrowing would cause a default, and warned that “even
a short-term default could cause irrevocable damage to the American
economy.” He called default “unprecedented.”
“Treasury securities enjoy their unique role in the global financial
system precisely because they are viewed as a risk-free asset,” he
writes. “Investors have absolute confidence that the Unied Sates will
meet its debt obligations on time, every time, and in full.”
Further, a default, Geithner writes “would call into question the
status of Treasury secuties as a cornerstone of the financial system,
potentially squandering this unique role and the economic benefits that
come with it.”
GOP leaders have not been completely clear about when they’ll move
legislation to increase the debt limit. In a recent letter to top
lawmakers on Capitol Hill, Treasury said better-than-expected tax
revenues allows them to borrow money until Aug. 2. But Geithner wants
the limit hiked immediately.
“It is critically important that Congress act as soon as possible to
raise the debt limit so that the full faith and credit of the United
States is not called into question,” he wrote.
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