Geithner Issues Dire Warning of Consequences Should Congress Fail to Raise Debt Ceiling

Jan 6, 2011 11:35am

ABC News' Jake Tapper and Ann Compton report:  In a footnoted letter to congressional leaders sent this morning, Treasury Secretary Tim Geithner issues a dire warning about the consequences should Congress vote against raising the $14.3 trillion debt ceiling, as then-Senator Obama did in 2006.

Since such a vote would mean the Treasury “would be prevented by law from borrowing in order to pay obligations the Nation is legally required to pay,” Geithner writes that consequences would include:

• Treasury defaulting “on legal obligations of the United States, causing catastrophic damage to the economy, potentially much more harmful than the effects of the financial crisis of 2008 and 2009”;
• This would also require the imposition of substantial taxation on every American since interests “rates for state and local government, corporate and consumer borrowing, including home mortgage interest, would all rise sharp”:
• No longer paying U.S. military salaries, Social Security and Medicare benefits, or student loans.

In a briefing, a Treasury official predicted that this wouldn’t happen. “We aren’t going to hit” the debt ceiling, the official said, expressing confidence that Congress would vote to raise the debt limit.

Then why Geithner’s strong warning to Congress?

“We want to make a public expression” of the need to act, the official said. The exact date for reaching the limit ranges from as early as March 31 until mid-May “depending on what tax receipts are and how the economy grows between now and then.”

-Jake Tapper and Ann Compton

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