WASHINGTON, April 17, 2011 -- Treasury Secretary Timothy Geithner says he is certain that Congress will raise the debt ceiling, saying leaders are "not going to play around with it" and risk the "catastrophic" consequences of defaulting on the nation's debt obligations.
"I want to make it perfectly clear that Congress will raise the debt ceiling," Geithner said in an interview with ABC News "This Week" anchor Christiane Amanpour. When asked if he was sure, Geithner responded, "absolutely," adding that Congressional leaders made clear they understood the importance of the matter when meeting with President Barack Obama at the White House last Wednesday.
"I sat there with them, and they said, we recognize we have to do this. And we're not going to play around with it," Geithner said of last week's White House meeting. "We know that the risk would be catastrophic."
"This is just about the basic trust and confidence in the United States," Geithner added. "It's about the basic recognition that we made commitments, we have to meet our commitments. There's no alternative, and they recognize that."
As many administration officials have done in recent months, Geithner spelled out dire consequences if the debt ceiling is not raised by June.
"What will happen is that we'd have to stop making payments to our seniors -- Medicare, Medicaid, Social Security. We'd have to stop paying veterans' benefits. We'd have to stop paying all the other payments on all the other things the government does," Geithner said. "And then we would risk default on our debt -- and if we did that, we'd tip the U.S. economy and the world economy back into recession -- depression."
"The people who would take this to edge, to the brink, they'll own responsibility for calling it to question, our credit worthiness, and that would not be a responsible thing to do," Geithner added.
He also added that defaulting on the nation's debt would make the 2008 financial crisis look modest in comparison.
"I think it would make the last crisis look like … a modest crisis. It would be much more dramatic," Geithner said. "The cost of borrowing would go up for everybody, and it would have a permanent devastating damage on our credit rating on us as a country."
While the debt ceiling debate looms large, Geithner says he does not believe the spending cuts agreed to in last week's budget resolution will damage the current economic recovery, as long as a balanced approach is taken.
"You need to do this gradually so that you protect the recovery, and I think we can do that," Geithner said.
"Things are Different Now"
The treasury secretary said there has been a fundamental shift in understanding the long-term impact of deficits, even if there are still differences between Democrats and Republicans on how to address them.
We spent a lot of years before the crisis with people saying deficits don't matter," Geithner told Amanpour. "Tax cuts pay for themselves. We can do huge expansion in entitlements without paying for it. And that's changed fundamentally now… People no longer say, Republicans or Democrats, that we can afford to live beyond our means. And that's a very important change."
Geithner acknowledged that even President Obama has shifted since his 2006 Senate vote against raising the debt ceiling, which Obama said was a mistake in an exclusive interview with ABC News' George Stephanopoulos last week.
"Things are different now. We're just coming out of a deeply damaging financial crisis," Geithner said. "Millions of Americans still feel the scars of that crisis now."
He said the challenge is to reach agreement on fundamental reforms to improve the deficit outlook, while still maintaining important investments in areas like health care and education.
"The hard thing is to try to take advantage of this moment, and get Republicans and Democrats to come together and lock in some reforms that will reduce our long term deficits," Geithner said.
"We recognize, the president recognizes, and Republicans recognize, this is something we have to do and we have to do it in a bipartisan basis," Geithner added. "Neither side has the votes to do this on their own."
The Tax Battle Ahead
Geithner accepted that disagreements remain with Republicans on the scope of spending cuts and how to reform the tax code, and that those differences may take longer to resolve.
"We have very big disagreements on what the right balance is," Geithner said. "The things we're going to disagree on for some time, we can take more time to resolve."
"What we think we can do is lock in some targets for deficit reduction, specific timeframe, ways to make sure those happen, that they're credible enforcing mechanisms, and we can agree on that now and still give us some room to debate and to disagree and to negotiate on composition of tax reform," Geithner added.
But Geithner does not believe fundamental deficit reduction can happen without ending the Bush-era tax cuts for the wealthiest Americans, which were extended in a temporary agreement last December, and remain in place in House budget committee chairman Paul Ryan's budget plan passed by the House on Friday.
"If you want to extend these tax breaks for the top two percent, then either you have to ask me to go out and borrow trillions of dollars from the Chinese or from foreign investors or from Americans or from our children, or you have to cut, as he proposes to do, very, very deeply into basic benefits for seniors, the disabled, the poor," Geithner said of the Ryan budget plan. "And we don't need to do that in order to restore balance for our fiscal position."
He does, however, think deficits can be reduced without raising taxes on the middle class, by ending tax loopholes and deductions that primarily go to wealthier Americans who itemize their tax returns.
"Those benefits, even like the mortgage interest deduction that lets people have two homes, pretty expensive homes … if you target them on the most fortunate Americans, they can afford to take a little bit larger share of the burden," Geithner said. They can afford to do that, and it's the responsible thing to do for the economy."