Geithner meets with skeptical House Republicans amid new warning on debt ceiling
Treasury Secretary Timothy F. Geithner, armed with a warning from Wall Street, appealed Thursday to House Republicans to raise the nation’s debt ceiling soon or face grim economic consequences.
Geithner spoke to House Republican freshmen, a group skeptical of his warnings. But a report from Moody’s Investors Service gave him fresh evidence of Wall Street’s increasing pessimism over prospects for a quick resolution to the standoff over government debt. The debt rating firm said it would consider downgrading U.S. credit if it did not see progress in negotiations by mid-July.
Moody’s had fully expected “political wrangling” over the issue, the firm said in a statement. But it added: “The degree of entrenchment into conflicting positions has exceeded expectations. The heightened polarization over the debt limit has increased the odds of a short-lived default.”
Geithner called the Moody’s report a “warning sign,” participants said. House Speaker John A. Boehner (R-Ohio) said it was evidence that “the White House needs to get serious” about deficits.
The government reached its borrowing limit of nearly $14.3 trillion on May 16. Treasury officials have said they can use a series of maneuvers to continue most government functions until early August, but then the nation would face a default on federal obligations leading to likely economic upheaval.
However, some of the 87 House GOP freshmen, staunchly conservative and strong-willed, have publicly questioned Geithner’s warnings. Dubbed by some as debt ceiling “deniers,” they doubt a failure to lift the cap would force a default or lead to unpredictable results in financial markets, as Geithner has argued.
Moody’s warning put pressure on Democrats as well as Republicans by calling for a deficit reduction deal as part of the debt ceiling talks. Boehner has said Republicans won’t vote to raise the limit until President Obama and Senate Democrats agree to massive spending cuts, though the GOP budget would also require raising the debt limit.
House leaders have quietly assured Wall Street they intend to raise the limit. Boehner said Wednesday that he believed a deal would be reached within a month.
Rank-and-file Republicans, however, claim that Geithner’s predictions of economic calamity are an attempt to force GOP leaders to cut a deal.
“He just said it will be ‘instant lights out’ on America, but he didn’t give a basis for that,” said Rep. Tim Huelskamp of Kansas, who attended Thursday’s meeting but is skeptical of the Treasury secretary.
Lawmakers said they went in hoping Geithner would talk about the administration’s long-term plans for deficits. As he left the meeting, Geithner predicted that officials would avoid a default and would agree this summer on “a long-term fiscal plan.”
Geithner has argued in letters to Boehner and other Republicans that the government is headed for default and is running out of options.
His chief foil in Congress is Republican Sen. Patrick J. Toomey, the Pennsylvania freshman who has promoted the view that, even without a borrowing increase, the Treasury would have enough money to pay the annual interest on debt, about $200 billion. That would be adequate to avoid the default, he has said.
Toomey proposed legislation to force the Treasury to first pay U.S. obligations, then use the remainder for other parts of the budget.
Initially dismissed as out of the political mainstream, the bill has garnered a surprising 22 Republican co-sponsors, nearly half the GOP members of the Senate. A House version introduced by Rep. Tom McClintock (R-Granite Bay) has 96 co-sponsors.
The show of support reflects public opposition to raising the debt limit, and the effect of persistent pressure from outside Congress, including from “tea party” conservatives who want to force the government to immediately begin to live within its means.
Doing so would require government spending to drop by a third — greater than $1 trillion, or roughly the cost of Social Security and Medicare — virtually overnight.
“The notion of default is a myth,” Bob Vander Plaats, a conservative activist from Iowa, said at a recent tea party gathering in Washington. “When they reach that limit, they’re going to have to prioritize, and the first priority is to pay off your debt.”
Geithner has flatly rejected this approach, telling Toomey earlier this year that global markets would not be satisfied if the country solely made interest payments on its debt.
Times staff writers Jim Puzzanghera and Lisa Mascaro in Washington contributed to this report.