Today, President Obama and Secretary Geithner made it clear that failing to raise the federal government’s debt limit by the August deadline would have catastrophic consequences for the U.S. economy and hurt families paying for college, maintaining a mortgage or owning a car. Ordinary Americans from all walks of life – including our Armed Forces, whose members depend on their paychecks; Social Security recipients, who rely on monthly benefits to maintain their retirement and health care security; and small business owners, who provide goods and services to the country – could all be affected.
At a press conference today at the White House, the President said the ramifications would be far-reaching: “This is a jobs issue. This is not an abstraction,” the President said. “The consequences for the U.S. economy will be significant and unpredictable. We don't know how capital markets will react.”
Earlier today, Secretary Geithner sent a response letter to Senator DeMint in which he explained that there was no way to prioritize payments to avoid a sovereign default.
“Even if the idea of ‘prioritization’ were not so unwise, it would not be a mere exercise in ‘belt tightening,’ as you suggest,” he wrote. “The United States is now required to borrow approximately 40 cents for every dollar of expenditures. Your proposal would require cutting roughly 40 percent of all government payments. These deep cuts would be felt by all Americans, and they would risk throwing the economy back into recession.”
He added: “This ‘prioritization’ proposal advocates a radical and deeply irresponsible departure from the commitment by presidents of both parties, throughout American history, to honor all of the commitments our nation has made.”
In a separate letter today to Senator Johnson, Secretary Geithner explained that raising the debt limit to protect America's creditworthiness has been acknowledged as a top priority by members of both political parties in Congress. Secretary Geithner cited Speaker Boehner, who said earlier this year that "raising the debt limit is the responsible thing to do" and that failure to do so "would send our economy into a tailspin." Senator DeMint and Senator Chuck Grassley have previously likened not raising the debt limit to refusing to pay your credit card bill – something everyday Americans cannot do.
President Reagan warned in 1983 that the consequences of default, or potential to default, were "impossible to predict and awesome to contemplate," adding that "the risks, the costs, the disruptions, and the incalculable damage lead me to but one conclusion: the Senate must pass this legislation before Congress adjourns."
For all these reasons, Secretary Geithner wrote, “Congress must raise the statutory debt limit.”
Read the transcript of President Obama’s press conference, Secretary Geithner's letters to Senator DeMint and Senator Johnson and other information on the importance of raising the debt limit.
Colleen Murray is Spokesperson for Domestic Finance.