MercoPress. South Atlantic News Agency

US government and Republicans clash over legal debt limit and budget cuts

Treasury Secretary Timothy F. Geithner warns of “severe hardship”

United States will reach its 14.29 trillion US dollars legal debt limit no later than May 16 unless Congress acts before then, Treasury Secretary Timothy F. Geithner said on Monday warning of “severe hardship” if lawmakers fail to act.

If the limit hasn’t been raised by May 16, the Treasury Department will turn to a toolkit of emergency measures that can provide up to eight weeks of additional borrowing room, Geithner said. That extra time would end about July 8, the Treasury chief said.

“The longer Congress fails to act, the more we risk that investors here and around the world will lose confidence in our ability to meet our commitments and our obligations,” Geithner said in a letter to Senate Majority Leader Harry Reid and other members of Congress.

The US Congress needs to raise the limit to maintain vital services and avoid “questions about our ability to defend our national security interests,” Geithner said. The U.S. would face sharply higher interest rates and would have to stop or delay payments to the military, retirees and others, he said.

“Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover,” Geithner said. “For these reasons, default by the United States is unthinkable.”

Newly elected opposition Republican lawmakers have been resisting a debt-limit increase while calling for extensive budget cuts. US Senator Marco Rubio, a Florida Republican, has said he won’t approve a debt-limit increase without a range of tax-and- spending reforms.

“We need to use the debt limit itself as the way to ensure that America’s debt limit begins to decline, not always go up,” Rubio said in a March 29 television interview with Fox News. “How about the debt limit starting to go down? These are the kinds of things I hope we’ll focus on.”

The US Treasury will conduct its regular schedule of securities auctions in the event of a government shutdown. If an event of such nature occurs shutdown due to a lack of spending authority is not the same as an inability to borrow because of the debt limit.

Geithner said in his letter today that spending cuts can’t provide the cash needed now, and he warned that the Treasury’s projections won’t change in a way that would give Congress extra time. He also said it would not be “viable” for the US to sell gold, financial investments or student loans.

“There is no alternative to enactment of an increase in the debt limit,” Geithner said. He said that increasing the limit “does not increase the obligations we have as a nation; it simply permits the Treasury to fund those obligations that Congress has already established.”

Geithner’s letter today described the emergency measures his department could take, along with the amount of borrowing room each step could free up. The measures, which have been used by prior administrations, include suspending issuance of state and local government securities, tapping government retirement funds and accessing the exchange stabilization fund.

“These extraordinary measures are less useful than in previous debt limit impasses,” Geithner said. These measures can free up about 230 billion US dollars, and the debt increases by about 125 billion each month, he said.