The federal government will hit the statutory debt limit by May 16 if Congress does not act, according to the Treasury Department.
In a letter sent Monday to Senate Majority Leader Harry ReidHarry ReidWarren builds her brand with 2020 down the road 'Tuesday Group' turncoats must use recess to regroup on ObamaCare Dem senator says his party will restore 60-vote Supreme Court filibuster MORE (D-Nev.), Treasury Secretary Timothy Geithner ratcheted up his warnings on the debt limit, arguing that nothing short of an increase to the borrowing limit will prevent incredible hardship for Americans.
Geithner argues that lawmakers have no choice but to raise the debt ceiling. Failing to do so would lead to a default on U.S. debt, and immediate cuts or tax hikes would fail to bring in the short-term cash needed to meet existing obligations.
Calling a default "unthinkable," Geithner warned that inaction on the debt limit could lead to a situation that would dwarf the turmoil that gripped markets in 2008.
"Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover," he wrote. "There is no alternative to enactment of an increase in the debt limit."
He argued it is simply not possible to avoid raising the limit by cutting spending or raising taxes. Because of the size of past commitments made by Congress, immediate cuts or tax hikes would not prevent the government from hitting the limit, and making commitments to spend less in the future would not deal with the limit in the immediate short term, with the limit looming large.
Furthermore, Geithner dismissed the argument that the Treasury could sell financial assets such as gold to avert hitting the debt limit. Holding such a "fire sale" would rattle markets and subject taxpayers to losses as the Treasury unloaded its holdings, he argued.
"This is not a viable option," he said.
Geithner asked congressional leaders to "help us impress upon all members the gravity of this issue and the imperative of timely action."
He also pointed out that increasing the debt limit does not increase the amount of spending the government can take on, but simply ensures it can meet previously vowed obligations.
"Increasing the limit does not increase the obligations we have as a nation; it simply permits the Treasury to fund those obligations that Congress has already established," he wrote.
In addition, he called on lawmakers to increase the $14.3 trillion limit sooner rather than later, as a prolonged debate on the limit could shake investor confidence in the stability of U.S. debt obligations.
Geithner noted that the Treasury could take some steps to avert a default if the limit is reached, but they would be exhausted by July 8.