Debt warning spurs showdown

By CQ Staff
Treasury Secretary Timothy F. Geithner’s warning that the government will hit its debt limit as early as March 31 has kicked off a high-stakes game of brinkmanship, with Republican leaders determined to extract spending concessions as the price of supporting an increase in the federal borrowing capacity and preventing a government default.
The looming deadline for raising the debt ceiling coincides with the need for Congress to find a way to fund the government for the rest of fiscal 2011 after a stopgap funding measure expires March 4.
It will also be hard on the heels of President Obama’s fiscal 2012 budget submission, expected in mid-February.
And it comes after the House repealed a mechanism known as the “Gephardt rule” earlier this week, which in the past made it easier for the House to raise the debt limit by avoiding a direct vote on it.
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In a letter to Senate Majority Leader Harry Reid, D-Nev., Geithner on Thursday warned that not raising the debt limit would cause a default on U.S. financial obligations, which he said would be potentially more damaging than the financial crisis of 2008 and 2009.
He called on Congress to raise the debt limit early this year, “well before the threat of default becomes imminent.”
“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. Even a very short-term or limited default would have catastrophic economic consequences that would last for decades,” he said.
Republican leaders in both chambers want to tie spending cuts and budget changes aimed at gaining control of the nation’s ballooning debt to any vote to raise the debt ceiling.
Though GOP leaders view an increase in the debt limit as necessary, they will have to deal with tea party-backed freshman lawmakers and a few veteran conservatives who are ready to oppose it.
Mindful of the government shutdown in late 1995 and early 1996, for which the public blamed Republicans, GOP leaders are hashing out a strategy for forcing Obama and Senate Democrats to accept spending restraint as a condition for raising the debt limit.
“We’re talking among ourselves as to exactly what we think would be the best course to take,” House Budget Chairman Paul D. Ryan, R-Wis., said Thursday at the National Press Club during a public interview with Paul Gigot, editorial page editor of the Wall Street Journal.
When asked what leverage the GOP would have in bargaining with the administration, Ryan said the duration of any debt ceiling increase offered an avenue for negotiation.
“There are different ways of doing a debt ceiling increase that speak to our strategy,” he said.
Ryan also raised the possibility that Obama could be blamed for a government default if the president rejected a debt limit increase with GOP conditions.
“I think it would be irresponsible if the president brings about a default in the country if he refuses to sign a bill raising the debt ceiling,” Ryan said.
The Treasury Department says the debt now stands at $13.95 trillion, leaving a cushion of just $335 billion below the current debt limit of $14.29 trillion. Geithner said the limit is likely to be reached between March 31 and May 16. He urged Congress to act during the first three months of the year.
Congressional Democrats also did some positioning of their own on the issue.
Speaking to reporters Thursday, Reid accused the Republicans of “threatening to shut down government, to have the United States of America default on its bills. You can imagine, as well as I can, the economic crisis this would cause. And not only what it would do internationally, but what it would do at home: no more Social Security checks, the troops wouldn’t get their checks, veterans wouldn’t get their checks, border security, FBI, all of it.”
The administration’s request for Congress to raise the debt ceiling provoked a combative response from House Speaker John A. Boehner, R-Ohio.
“The American people will not stand for such an increase unless it is accompanied by meaningful action by the president and Congress to cut spending and end the job-killing spending binge in Washington,” Boehner said.
“While America cannot default on its debt,” he continued, “we also cannot continue to borrow recklessly, dig ourselves deeper into this hole and mortgage the future of our children and grandchildren.”
Boehner added that the president and Democrats in Congress would have to work with Republicans to cut spending and overhaul the budget.
Senate Minority Leader Mitch McConnell, R-Ky., seconded the House GOP’s call for tying spending controls to a debt limit increase and took a mild swipe at the administration.
“Rather than sending scary letters, what we ought to look at is an opportunity here on a bipartisan basis to address spending and the debt,” McConnell said.
Senate Finance Chairman Max Baucus called on Congress to begin work on raising the debt limit immediately.
“No one is more concerned about reducing the deficit than I am, but this is no time to play chicken with American jobs and the future of our economy,” the Montana Democrat said in a statement. “It is time to tackle the deficit in a serious, bipartisan fashion and to do so in a manner that doesn’t risk the full faith and credit of our economy and our country in the process.”
As a fallback position, Geithner said Treasury could take “extraordinary measures” such as suspending the sale of Treasury securities to delay the date when the limit is reached by several weeks.
“Once these steps have been taken, no remaining legal and prudent measures would be available to create additional headroom under the debt limit, and the United States would begin to default on its obligations,” he said.
Geithner also warned that even if Congress were to scale back discretionary spending to fiscal 2008 levels, a goal of House Republicans, that action would delay the need to raise the debt limit by no more than two weeks.
Congress last raised the debt limit in February 2010.
-- Paul M. Krawzak, CQ Staff