A senior Treasury official warned Tuesday that it is “imperative” to open the government in order to avoid risking permanent damage to America’s economic growth and international reputation.
The official, during a conference call previewing the upcoming IMF and World Bank meetings, urged that “default for the first time in our nation’s history could pose serious implications to our nation’s economy.”
“The U.S. is the anchor of the international financial system and can’t take its hard-earned reputation for granted,” she warned. ”We cannot become a nation where the threat of default is repeatedly used without incurring permanent damage to our reputation.”
The official, who under the terms of the call declined to be named, noted the agenda for the meetings scheduled to be held Friday through Sunday will not be dominated by national headlines despite conversations surrounding the government shutdown and debt ceiling.
“We have a very rich agenda … a broader agenda is vitally important to [the nation's] economic recovery.”
However, bringing an end to the government shutdown is the best way for Treasury officials to “pursue America’s economic interests and a robust economic recovery.”
“Before the shutdown all signs pointed to economic growth, [but] growth remains weak and uneven. … It is important for America to be able to function fully with the government open.”
But after separate news conferences Tuesday from President Barack Obama and House Speaker John Boehner, it appears both sides are digging in over the budget impasse.
Obama insisted that he’s “not budging” on his demand that congressional Republicans raise the borrowing authority and pass a bill to fund the government — both without any restrictions — while Boehner rejected what he considers Obama’s call for “unconditional surrender.”
Despite Washington’s reluctance to compromise, Bloomberg News reports that the U.S. Treasury has the means to avoid a debt default even if Congress fails to raise the government’s $16.7 trillion borrowing limit.
On the downside, it can’t prevent a recession.
Economists expect the Treasury to “husband” the tax money it collects in order to meet interest and principal payments on the nation’s debt. Other obligations, from salaries of government workers to defense contractor payments, would face the cut.
The result would be $175 billion less in government spending and a spending cut so huge it would send the U.S. right back into a recession.
“As reckless as a government shutdown is, the economic shutdown caused by America defaulting would be dramatically worse,” Obama urged during the press conference Tuesday. “Even though people can see and feel the effects of a government shutdown, there are still some people out there who don’t believe default is a real thing.”