Treasury Secretary Tim Geithner sent a cage-rattling letter to congressional leaders Thursday, warning that a failure to raise the debt limit could plunge the nation into an economic crisis more severe than 2008′s and cost millions of jobs.
“Failure to raise the limit would precipitate a default by the United States. Default would effectively impose a significant and long-lasting tax on all Americans and all American businesses and could lead to the loss of millions of American jobs,” Geithner said.
“Even a very short-term or limited default would have catastrophic economic consequences that would last for decades. Failure to increase the limit would be deeply irresponsible,” he wrote.
Geithner says the U.S. debt currently stands at $13.95 trillion, $335 billion below the current ceiling of $14.29 trillion. He said that the ceiling could be reached as early as March 31, but asked that Congress “act to increase the limit early this year, well before the threat of default becomes imminent.”
He said that while President Obama “believes strongly in the need to restore balance to our fiscal position,” the consequences of failure to raise the debt ceiling would be “catastrophic,” using the same term as the one mentioned Sunday by Austan Goolsbee, a top White House economic adviser to Obama.
“The Treasury would be forced to default on legal obligations of the United States, causing catastrophic damage to the economy, potentially much more harmful than the effects of the financial crisis of 2008 and 2009,” Geithner said.
He added that a default would be far worse than the government shutdown late 1995 and early 1996, and that it would represent “a substantial tax on all Americans.”
“Because treasuries represent the benchmark borrowing rate for all other sectors, default would raise all borrowing costs,” he said. “Equity prices and home values would decline, reducing retirement savings and hurting the economic security of all Americans, leading to reductions in spending and investment, which would cause job losses and business failures on a significant scale.”
“Any default on the legal debt obligations of the United States is unthinkable and must be avoided,” Geithner added. (Read the full letter below).
Republicans such as Rep. Michele Bachmann of Minnesota have touted petitions against raising the debt ceiling. Sen. Tom Coburn, Oklahoma Republican, has said he would like to see an attempt to avoid the need for an increase by cutting hundreds of billions of dollars.
But the ground has clearly shifted and Republicans are looking to see how many spending cut concessions they can extract from the White House in exchange for an increase.
House Speaker John Boehner, Ohio Republican, responded to the letter by stating that the GOP would require “meaningful action by the president and Congress to cut spending and end the job-killing spending binge in Washington.”
House Budget Committee Chairman Paul Ryan, Wisconsin Republican, also said at a forum Thursday that Republicans are “not interested with just a naked debt ceiling increase.”
“Just refusing to vote for it, I don’t think that’s really a strategy. I don’t want to rubber stamp big government,” Ryan said at an event sponsored by E21, a conservative group. “Do I want to see the government default? No. but I want to make sure we get substantial spending cuts and controls in exchange for raising the debt ceiling.”
Not all Republicans were impressed by Geithner’s warning or by talk among GOP leaders of extracting concessions from the White House.
“I would suspect that if there is some type of agreement in order to get the debt level increased, it probably won’t hold much water,” said Rep. Ron Paul, Texas Republican, on MSNBC. “Besides, they’re not even talking about very much cut. The maximum that’s been mentioned is $100 billion. And when you have a trillion dollars of deficit being accumulated in about seven months, it really doesn’t add up to enough.”