House Speaker John Boehner set out a broad template for the Republican Party's approach to the economy in a speech to the Economic Club of New York on Monday night, suggesting smaller government, steep budget cuts and small business know-how are the key to adding jobs in the United States.
"Our economy does best when government respects our people enough to give them the freedom to do what they do best," said Boehner. "I believe our mission as legislators is to liberate our economy from the things that impede growth; to provide clear policies, so that innovators and entrepreneurs have the green light to move forward and create jobs, without having to worry about second-guessing from Washington."
While Boehner addressed the crowd of 750 financial and political professionals, the Federal government was ticking ever closer to the $14.29 trillion debt ceiling. At the end of the market day, Uncle Sam had less than $23 billion in available credit -- equivalent to just $16 left on a $10,000 credit card.
The Speaker gave a nod to the need to increase the debt limit, but not without steep cuts in government spending.
"It's true that allowing America to default would be irresponsible," said Boehner. "But it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process. To increase the debt limit without simultaneously addressing the drivers of our debt -- in defiance of the will of our people -- would be monumentally arrogant and massively irresponsible."
Economists and policy makers in Washington say on May 16 regular government spending will max out the Congressionally-mandated debt limit.
Insiders tell ABC News that date will likely come and go without a vote, forcing the Treasury to enact several "extraordinary measures" to keep the Federal government operating.
Treasury Secretary Geithner said that the measures -- which include temporarily borrowing funds from government worker pension and retirement funds -- will likely give the administration and Congressional Republicans until early August to iron out a deal.
The hesitance to vote on a "clean bill" which would expand the credit limit without simultaneously reducing government spending was the result of the influence of the influence of Tea Party freshmen and their vocal supporters. It is a reality Boehner acknowledged in the speech.
"The revolt that we have seen around our country by ordinary citizens over the past few years is like nothing we've seen in our lifetime," said Boehner. "And it's happening in part because the arrogant habits of Washington are having real economic consequences. The debt limit debate presents our nation's leaders with the opportunity to reverse these habits and prove that we're starting to get the message. It's a chance to change course and admit that reactionary, short-term Washington solutions aren't always best."
Geithner has said on numerous occasions not expanding $14.29 trillion borrowing limit would cause "catastrophic economic impact[s]" which would affect every American.
"We will not succeed in balancing the federal budget and overcoming the challenges of our debt until we commit ourselves to government policies that will let our economy achieve long-term growth," said Speaker Boehner. "Our economy won't grow as long as we continue to trip it up with short-term gimmicks from Washington."
Boehner: Trillions in Budget Cuts Needed
Economists say the government likely needs almost $2 trillion in new borrowing capacity to keep the government operating to December 2012.
"We should be talking about cuts of trillions, not just billions," said Boehner. "They should be actual cuts and program reforms, not broad deficit or debt targets that punt the tough questions to the future. And with the exception of tax hikes -- which will destroy jobs -- everything is on the table."
"If we don't act boldly now, the markets will act for us very soon. That's the warning we got from Standard & Poor's a few weeks ago."
While investors of all political stripes have said they are looking for a long-term commitment to a more restrained fiscal policy by the government, they have also said there needs to be action to keep the government funded and functioning.
"What Wall Street wants to hear is that they are going to raise the debt ceiling in a timely way," said Mark Zandi, chief economist at Moody's Analytics, according to Bloomberg News. Investors expect "policy makers are going to negotiate and debate, but at the end of the day" they want assurances that "when it comes down to brass tracks they are going to raise that debt ceiling," Zandi said.
During a speech in Detroit last month, Treasury Secretary Geithner said if "you get to the point where people start to act on the possibility, however remote, that the U.S. might default, that itself would be terribly damaging to the recovery."
The Treasury issued another warning to Congress last week -- pass a debt ceiling increase before May 16 or the Federal government will be running on fumes.
The Treasury says it will tap into several civil service retirement funds to keep the government functioning after the debt limit is reached. Under existing law, any depletion these funds suffer under the emergency actions will have to be replaced once the debt limit is raised by Congress.
Using these actions will stretch the Treasury's ability to fund government operations until "… about August 2, 2001, approximately three weeks later than was forecast last month."
The Treasury Department also issued details of its quarterly refunding needs, saying it will need to borrow some $142 billion in the second quarter, which ends in June. That's lower than the original estimate, thanks to higher tax receipts and lower spending. According to that report, Treasury will need to issue $405 billion in the third quarter to continue government operations.