Timothy Geithner
Mary Altaffer  /  AP
U.S. Treasury Secretary Timothy Geithner speaks to members and guests of The Harvard Club of New York City on Tuesday in New York.
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updated 5/18/2011 9:09:24 AM ET 2011-05-18T13:09:24

Treasury Secretary Timothy Geithner said Tuesday that if Republicans insist on passage of their budget plan as a condition for approving an increase in the nation's borrowing limit, they will be responsible for the consequences.

Speaking to a New York audience, Geithner said that Republicans would bear responsibility for the first debt default in the nation's history if they insist they will not vote for an increase in the $14.3 billion borrowing limit unless they win approval of a House Republican budget plan.

"If Republicans try to impose that plan on this country as a condition for raising the debt limit, then they will own the responsibility for the first default in our history, with devastating consequences," Geithner said in a speech to the Harvard Club of New York.

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Geithner noted that the country reached the current borrowing limit of $14.29 trillion on Monday. He said he has begun deploying a series of bookkeeping maneuvers to avoid a debt default but that he will run out of maneuvering room around Aug. 2.

"As I have said before, Congress must meet its responsibility to protect the nation's full faith and credit by increasing the debt limit," Geithner said.

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He said while the borrowing costs on the national debt have remained low, that could change quickly if financial markets begin to doubt America's ability to deal with its financial difficulties.

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He said the cost of debt default, something that has never occurred in the country's history, would be as devastating as the financial crisis that hit in 2008.

"As we saw in the fall of 2008, when confidence turns, it can turn with brutal force and with a momentum that is very difficult and costly to arrest," Geithner said. "That is a threat we should pre-empt."

Geithner called on lawmakers to work on a credible deficit-cutting plan that could be accepted by both Republicans and Democrats.

House Speaker John Boehner said again on Monday that Republicans will not support an increase in the debt limit "without serious budget reforms and significant spending cuts."

Republicans have ruled out any tax increases, including any plans to end tax cuts for high earners enacted in 2001 and 2003.

The Treasury Department confirmed that the debt ceiling was reached on Monday with the debt now totaling $14.293 trillion, $25 million under the current ceiling of $14.294 trillion.

Treasury will maintain that level over the next 11 weeks through a series of maneuvers that began Monday when Geithner informed Congress he had halted investments in two pension plans for federal employees.

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Treasury will begin reducing the debt holdings in those accounts over the next few weeks to make room for its regular auctions of debt.

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Video: Geithner: Congress has to raise debt limit

  1. Transcript of: Geithner: Congress has to raise debt limit

    MR. GREGORY: Good morning. Millions of Americans will rush to file their tax return by tomorrow's deadline at a time when taxes are at the heart of the budget debate here in Washington . The spending fight and high gas prices, with a national average now of $3.83 a gallon, top of mind for the president's chief economic adviser, Treasury Secretary Tim Geithner . I sat down with him yesterday at the Treasury Department . There's so much to get to. I want to begin with the next big fight here in Washington . The government nearly shut down because this year's budget. Now there's the decision to raise the credit limit on America 's credit card, with the debt at $14 trillion. That is, raising the debt ceiling. Will the president agree, as Republicans demand, to tie spending cuts to an agreement to raise the debt ceiling?

    SEC'Y TIMOTHY GEITHNER: David , let me tell you how we're going to do this. Congress is going to have to raise the debt limit. They understand that. That's absolutely essential to preserve the creditworthiness of the United States of America. You know, we're a country that meets its obligations, and we have to meet our obligations, and they recognize that. I heard -- in fact, I heard the leadership tell the president that again on Wednesday.

    MR. GREGORY: But you hear so many Republicans saying, "No, no, there's got to be a deal here."

    SEC'Y GEITHNER: But, but, but as we do that, in parallel to that, we're going to work with the Republicans and Democrats and try and get people to come together on a long-term plan to bring our fiscal position back down towards balance so we're living within our means again. We have to do both those two things. And we're going to work very hard again to take advantage of this opportunity to get Democrats and Republicans to come together.

    MR. GREGORY: But does there have to be a link?

    SEC'Y GEITHNER: I think you can do these things in parallel. And I'll -- let me say it this way. You know, we're going to move forward, and we want -- again, we want Congress to put in place a comprehensive framework, a balanced framework, that can reduce our long-term deficits. And we're going to work hard to do that. But if, by the time we need to raise the debt limit, we haven't worked all that out, Congress still has to raise the debt limit. Again, leadership recognize that. They don't -- they know...

    MR. GREGORY: Or, or else what? Because they say a lot of your warnings are overblown. Those like Senator DeMint of South Carolina say those warnings about, you know, the catastrophe are overblown.

    SEC'Y GEITHNER: Oh, that's absolutely not the case. And again, I think -- I've spent a lot of time with Republicans and Democrats on this -- you know, I saw the Senate Finance Committee last week -- and they absolutely understand the stakes in this. And the leadership understand that you can't play around with this, you can't take it too long. And those people up there who are telling people that you can take this to the brink because it gives them some leverage, they're going to own the responsibility for the risk that creates for the American economy .

    MR. GREGORY: And what are the stakes?

    SEC'Y GEITHNER: Well, again, if you just think of it this way, if you allow people to start to doubt whether the United States of America will meet its obligations, that would be catastrophic, and we can't take that risk. But again, the responsible people up there understand that, and I'm very confident they'll do this. And I heard them say that, that to the president on Wednesday. Again, they said that, "We, we recognize we can't play around with this."

    MR. GREGORY: Do you think this risks another shutdown?

    SEC'Y GEITHNER: I don't think so. Again, I think if you, if you listen carefully -- I know there's a lot of politics in the moment, but if you listen carefully to what people are saying, a very important thing has happened. You've seen the Republican leadership say we need to try and cut about $4 trillion from our deficit over about 10 years. You saw a bipartisan fiscal commission the president established lay out basically the same target. And the president of the United States on Wednesday laid out a balanced, responsible plan that achieves about the same level of deficit reduction over about the same period. We take a little longer because we want to go a little more gradually. But when you have leadership of Republicans and Democrats saying that, "This is the right thing to do for the economy now. We all agree on how much you have to do," that's very important. And what we like to -- Congress to do is, again, before we get too far into June we want Congress to agree on concrete targets, deadlines, timelines, and an enforcement mechanism that will force Congress to live within its means over the next three to five years.

    MR. GREGORY: OK, but one more on the debt limit. When he was Senator Obama , he voted against raising the debt limit in 2006 .

    SEC'Y GEITHNER: He did. And he said...

    MR. GREGORY: And he said, he said at the time that the debt problem was a, quote, "failure of leadership , and Americans deserve better." Look, the debt has gone up 35 percent during his presidency. Is that also a failure of leadership ?

    SEC'Y GEITHNER: You know, you, you heard him say this week that that was a mistake. He recognized that's a mistake, and he recognizes that's not something you can play politics with. You know, Steny Hoyer said in the -- on the floor something similar earlier this year. He said that, "I thought this was something you could demagogue. I was wrong at that point. Not something you can play politics with." Again, that it's -- this is a absolutely critical thing for people to understand. This is about the trust and confidence in the American people , and the world is watching us. Markets around the world are watching Washington to see whether this political leadership , Republicans and Democrats , understand that we need to get on with it and start to bring down the long-term deficits. And, of course, as we do that, as we work that out, Congress will pass the debt limit.

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