On Thursday, a group of 17 Republican senators accused Treasury Secretary Timothy Geithner of overstating warnings about the U.S. government’s debt default. After Geithner announced in mid-May that the U.S. had reached its debt ceiling, he also discussed the challenge of satisfying creditors before the government would completely default 11 weeks later. Republicans say his warnings about default are exaggerated.
Senators Say Treasury Can Easily Satisfy Creditors
The group of senators, which includes South Carolina Senator Jim Demint, says that Geithner’s warnings about debt default are instilling unnecessary fear into Americans.
The senators wrote a statement to Geithner that noted, “Even if the debt ceiling remains where it is, there will be more than enough money in the Treasury to make the government’s debt payments, thereby avoiding default.”
The statement went on to tell Geithner, “It is irresponsible and harmful for you to sow the seeds of doubt in the market regarding the full faith and credit of the United States.”
While they admit the economy is still shaky, they say that the Treasury should be able to satisfy creditors if it cuts back on spending. They believe failure to raise the debt ceiling by the deadline, which is now set for Aug. 2, would not be catastrophic.
Treasury Says Failure to Pay Creditors Could Raise Borrowing Costs
The Treasury Department issued a rebuttal to the senators’ announcement by pointing to a Congressional Research Service report that notes the government’s failure to pay a large portion of its bills would not only hurt the economy but could cause investors to lose confidence in the U.S. credit.
Since the U.S. credit rating of AAA is already in danger of dropping, according to Standard & Poor’s, any further loss of confidence could result in borrowing costs increasing substantially.
Treasury spokeswoman Colleen Murray said in a Reuters report that it was “misguided and deeply irresponsible,” for senators to suggest that “instead of meeting their responsibilities, the United States should for some indefinite period stop paying nearly half of its bills.”
Republicans in Congress are refusing to raise the $14.3 trillion cap on U.S. borrowing authority until the White House and Democrats to make deep spending cuts. Both parties agree that any increase in the cap must come with steps on how get the deficit under control.
Currently, the Treasury is dipping into federal pension funds to pay the country’s bills. It says this should hold off a default until August, but the Obama administration insists that if the debt ceiling isn’t raised, the U.S. will be forced to default on its obligations, which could ultimately push the economy back into a recession and cause problems for markets around the globe.
