By Vicki Schmelzer and Yali N’Diaye
NEW YORK (MNI) – Treasury Secretary Timothy Geithner said Tuesday
the debt limit only relates to past obligations and the focus instead
should be on how to reduce fiscal deficits over the long term to bring
the debt on a more sustainable path.
“The debt limit, of course, relates only to commitments we have
made in the past,” Geithner said in a speech prepared for delivery to
the Joan Shorenstein Center on Press, Politics and Public Policy.
“Rather than debating whether we should pay our past bills and
whether default would in fact be so bad; rather than designing schemes
to allow us to continue to make interest payments by breaking our
commitments to seniors and veterans; we should be working together to
narrow our differences on how to solve the causes of future deficits,”
he said.
He again stressed the need to hike the statutory debt ceiling from
$14.3 trillion even in the absence of an agreement on fiscal reform over
the next coming weeks.
The “extraordinary measures” already being taken by the Treasury
will allow to meet the government’s obligations only until August 2,
Geithner cautioned.
While noting “encouraging signs of future economic strength,” he
said the very “foundations of our future economic strength” could be
threatened by the “formidable” fiscal challenges the country faces.
Achieving a deficit-to-GDP ratio of 3% “is the essential test of
fiscal sustainability,” he said.
Still, “we can’t do this too quickly,” he warned, otherwise, growth
would be jeopardized.
“With interest rates very low, we cannot count on the Federal
Reserve to be able to offset the contractionary effects on economic
growth of a lurch to excessive austerity,” Geithner said.
Rates on the Treasuries are also low, he pointed out, “reflecting
confidence that we will act” as well as the lack of alternative
investments worldwide. But they are “not a justification for inaction.”
And in fact, “If we leave our debt problems unaddressed, those who
lend us the resources to fund our past and future commitments will
eventually demand higher interest rates,” Geithner said.
The Republican approach to addressing the issue, however, is wrong
and Geithner said he expects that the House Republican budget “will not
pass the Congress, now or in the future.”
“Not just because any legislation today will require votes from
Republicans and Democrats, but also because this alternative would
require implausibly deep cuts in benefits for the elderly and the poor,
and would reduce the rest of U.S. government spending to what it was
before the modern era, or to the level more typical of some countries in
the developing world.”
Indeed, focusing on spending along is not the right approach, he
repeated in presenting President Obama’s proposal.
“The fundamental reality of our fiscal situation is that we will
need to generate more revenue, and we will need to reduce the rate of
growth in spending on health care and retirement security,” he said.
“Both are necessary.”
Focusing on spending caps alone, “even if set at more realistic
levels, would not be sufficient to achieve fiscal sustainability,” he
said.
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