Geithner: GOP default plan 'harmful'

The Treasury Department is hitting back at Republican claims that its warnings on the debt limit are incorrect, saying that a GOP proposal to avoid default without raising the limit is "unworkable" and would be "quite harmful."

Treasury Secretary Timothy Geithner told Sen. Pat Toomey (R-Pa.) in a letter Thursday that the government cannot simply "prioritize" payments on the principal and interest of public debt to avoid default if the debt limit is reached, as Toomey has suggested.

Rather, he said the only way to avoid a default on U.S. debt is to raise the debt ceiling. Geithner had previously warned lawmakers that a default would have "catastrophic economic consequences" for the country and entire world. Federal Reserve Chairman Ben Bernanke echoed that warning Thursday.

Toomey and other Republicans in the House and Senate are backing legislation they claim would allow the nation to hit the $14.3 trillion debt ceiling without endangering the nation's creditworthiness through a default. Toomey accused Geithner of making "factually incorrect" statements about the debt limit in a letter sent Wednesday. He contends the Treasury has tools at its disposal that could allow it to meet its debt obligations if the debt limit is reached, and that it has done so on four separate occasions in the past.

But on Thursday, Geithner turned the tables on Toomey, contending it was the freshman senator that was being "factually incorrect" on the matter.

"At no point during any previous debt-limit impasse has the Treasury Department failed to meet any payment obligation, nor has the Treasury ever 'prioritized' payments," he said.

Geithner maintained that under Toomey's proposal, even if the government made payments on its public debt, the world would still recognize the government was not meeting other legal obligations, and it would be seen as "a first-ever failure by the United States to meet its commitments."

He likened the issue to a homeowner struggling to pay several obligations. While the individual could prioritize payments on his mortgage while stopping payments on other obligations like car payments or student loans, the mortgage would be paid, but the individual's creditworthiness would still suffer "severe" damage.

Although the Treasury does not expect to hit the debt limit until sometime in April or May, lawmakers are already drawing lines in the sand. Many Republicans have acknowledged that the limit must be raised, but are still making their support contingent on major spending cuts or a balanced-budget amendment.