Treasury warns of catastrophe if Congress fails to raise debt ceiling

Treasury Secretary Timothy Geithner is warning Congress of "catastrophic economic consequences that would last for decades" if lawmakers fail to increase the statutory debt limit for the government, which could be hit as early as March 31.

In a letter sent to all members of Congress, Geithner argued that refusing to raise the debt limit, which has been advocated by some new Republican members of Congress, is simply not an option.

"Never in our history has Congress failed to increase the debt limit when necessary," he wrote. "Failure to increase the limit would be deeply irresponsible."

Geithner's warning sets up a major fight with Republicans, who took over the House on Wednesday. GOP leaders have vowed to reduce federal spending and want to impose significant cuts on domestic programs. They hope to use the vote on the debt ceiling to win concessions from Democrats and the administration. 

House Speaker John Boehner (R-Ohio), responded to Geithner's letter by saying that while the nation cannot be allowed to default on its debt, an increase to the debt limit would have to come with "meaningful action" by lawmakers and the administration to cut spending.

"While America cannot default on its debt, we also cannot continue to borrow recklessly, dig ourselves deeper into this hole, and mortgage the future of our children and grandchildren," he said in a statement. "Spending cuts — and reforming a broken budget process — are top priorities for the American people and for the new majority in the House this year, and it is essential that the President and Democrats in Congress work with us in that effort.”

Geithner warned that if the U.S. exceeds its debt limit, the country would no longer be able to borrow to pay legally required obligations, resulting in a default. Such a historically unprecedented move would "effectively impose a significant and long-lasting tax on all Americans and all American businesses and could lead to the loss of millions of American jobs," Geithner said.

"Responsibility for creating the debt is bipartisan, and responsibility for meeting the nation’s obligations must be shared by both parties," he added.

In addition, he said lawmakers should not conflate a default on government debt with a temporary government shutdown stemming from a failure to enact appropriations bills, which happened in the mid-1990s under President Bill Clinton.

"Those government shutdowns, which were unwise and highly disruptive, did not have the same long-term negative impact on U.S. creditworthiness as a default would," he said.

Congress most recently increased the debt limit in February, boosting it to $14.29 trillion. Geithner said the current outstanding debt of the government is $13.95 trillion, and the $335 billion in remaining extra space will be exhausted sometime between the end of March and May 16, depending on various factors.

This story was updated at 11:14 a.m.