Republican senators say Geithner wrong on default

Reuters News
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Posted: May 26, 2011 6:33 PM
Republican senators say Geithner wrong on default

By Mark Felsenthal

WASHINGTON (Reuters) - A group of 17 Republican senators on Thursday accused Treasury Secretary Timothy Geithner of overstating warnings about a debt default, saying the Treasury could continue to satisfy creditors if it cut back on other spending.

"Even if the debt ceiling remains where it is, there will be more than enough money in the Treasury to make the government's debt payments, thereby avoiding default," the senators, who include banking panel member Jim DeMint, wrote to Geithner.

"It is irresponsible and harmful for you to sow the seeds of doubt in the market regarding the full faith and credit of the United States," they wrote.

The letter mirrored comments made last week by another one of its signatories, Pennsylvania Senator Pat Toomey.

Toomey said that while there would be disruptions, failure to raise the debt ceiling by the deadline set by the administration would not be catastrophic.

The Treasury Department on Thursday pointed to a Congressional Research Service report saying the government's failure to pay a big portion of its bills would hurt the economy and could cause investors to lose confidence in U.S. credit, raising borrowing costs substantially.

"The suggestion by some in Congress that instead of meeting their responsibilities, the United States should for some indefinite period stop paying nearly half of its bills is both misguided and deeply irresponsible," Treasury spokeswoman Colleen Murray said.

Republicans in Congress are refusing to raise the $14.3 trillion cap on U.S. borrowing authority unless the White House and Democrats agree to deep spending cuts as part of any increase. Lawmakers from both parties say any rise must be paired with steps to bring stubborn trillion-dollar deficits under control.

The debt limit was reached on May 16. The Treasury is dipping into federal pension funds to pay the country's bills, one of several emergency measures that should stave off a default until early August.

The administration has said a failure to raise the debt ceiling would eventually force the United States to default on obligations -- whether payments to Social Security retirees or interest on the debt. That could push the country back into recession and cause trouble for economies and markets across the globe.

DeMint, Toomey and others argue that if the debt ceiling is not increased, the United States could continue to pay interest on its debt although it might have to curtail other spending. The lawmakers asked Geithner to reassure financial markets by guaranteeing the United States will make its interest payments.

A senior U.S. bank regulator who was appointed by a Republican administration, Federal Deposit Insurance Corp Chairman Sheila Bair, said on Thursday that a technical default would be "calamitous."

(Reporting by Mark Felsenthal; Editing by Leslie Adler)