July 10, 2011Geithner: Failure Not an Option in Reaching US Debt Deal
U.S. Treasury Secretary Timothy Geithner warned on Sunday that failure to raise the debt ceiling by Aug. 2 could mean "catastrophic damage" to the economy, and an agreement must be reached.
"There has to be a deal, failure is not an option. The question is how good a deal it's going to be," Geithner said on CBS's "Face the Nation."
The Treasury has said the debt ceiling must be raised by Aug. 2 and credit rating agencies have threatened to downgrade U.S. debt if there is a risk of default.
Republicans and Democrats are at odds over how to go about reducing the budget deficit, which lawmakers have tied to any agreement on raising the $14.3 trillion cap on U.S. borrowing authority.
"We have no option except to come together. And the question is, again, not whether we're going to have an agreement. We're going to have an agreement. The question is: are we going to have an agreement that's going to be good for the economy?" Geithner said.
"This week, and certainly by the end of next week, we have to have agreement on the outlines of a package," he said. "It has to be clear that the leadership has found a way to solve this and they have a path to get votes for something."
President Barack Obama and House Speaker John Boehner are to meet with other congressional leaders at the White House later on Sunday. The meeting comes one day after Boehner said he would only pursue a deficit-reduction package about half the size of the far-reaching $4 trillion deal favored by Obama.
"We're going to try to get the biggest deal possible, a deal that's best for the economy, not just in the short term," Geithner said on NBC's "Meet the Press." He added that "small deals are very tough, too" because they require difficult reforms, savings, and cuts.
Geithner warned that if credit rating agencies downgrade U.S. debt for the first time in history, "you're going to see catastrophic damage across the American economy and across the global economy."
Republicans Seek Smaller Deal
Boehner, facing stiff opposition from fellow Republicans over the prospects of higher taxes as part of a large-scale budget deal, told the Democratic president Saturday he would only pursue a smaller, $2 trillion package.
The move threatened to throw Sunday night's meeting into disarray. It followed Democratic complaints to Obama that he should not agree to any reforms of popular entitlement programs that would lead to benefit cuts.
White House chief of staff William Daley told CBS' "Face the Nation" that "there's no question in my mind" that a default will be avoided. "I'm confident of that," he said.
In an appearance on ABC's "This Week With Christian Amanpour," Daley said the White House believed a deal of around $4 trillion was needed to "send a statement to the world that the U.S. has gotten hold of their ... fiscal problems."
Failure to act could mean the first-ever default on the nation's financial obligations, which the White House and private economists warn could push the United States back into recession and trigger global financial chaos.
Aides to Obama and Boehner had been working on a far-reaching package of spending cuts and new revenue that would have reduced deficits by $4 trillion over 10 years and cleared the way for lifting the $14.3 trillion cap on the government's borrowing capacity.
But Boehner's move dampened hopes of any immediate compromise and raised doubts about the chances that Sunday's talks would start moving the budget debate toward an end-game.
"Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes," Boehner, the top Republican in Congress, said in a statement. "I believe the best approach may be to focus on producing a smaller measure."
Big Differences Remain
Boehner and Obama, whose 2012 re-election prospects are tightly linked to U.S. economic and fiscal health, spoke by phone Saturday and failed to resolve key differences over taxes and entitlement spending.
Senate Republican leader Mitch McConnell, appearing on "Fox News Sunday," said, "Nobody's talking about not raising the debt ceiling," and said he was "for the biggest deal possible too. It's just that we're not going to raise taxes in the middle of this horrible economic situation."
McConnell said he believed the sweeping $4 trillion package was off the table. He suggested Republicans have an alternative idea to avoid a default up their sleeves.
Asked if there was a contingency plan to avoid a default, McConnell said with a smile: "There's always a contingency plan."
Democrats want to shield popular domestic programs from huge cuts and say that any deal must include increases in tax revenue, including an expiration of Bush-era tax cuts on wealthier Americans.
Republicans — under pressure from Tea Party conservatives — reject any increased taxes and want curbs on popular benefit programs such as Medicare, Medicaid and Social Security.
Aides to Obama and Boehner had been discussing revenue increases that would have been achieved in part by a streamlining of the tax code, something that appeals to both Democrats and Republicans.
But Democrats' demands for $1 trillion in additional revenue also include eliminating tax breaks and other measures that many Republicans were reluctant to support.
http://www.cnbc.com/id/43701824
