By Peter Schroeder - 06/29/11 03:11 PM EDT
Treasury Secretary Timothy Geithner has made yet another attempt to convince conservative lawmakers they have no choice but to raise the debt limit.
In a lengthy letter sent to 17 Republican senators Wednesday, Geithner offered a broad takedown of the argument that the debt limit need not be raised to avoid a default. He called such an idea "radical and deeply irresponsible," "unwise," "untested and unacceptably risky" and "futile."
"I hope we can all agree that we should not and must not gamble with the full faith and credit of the United States," he wrote. "The consequences of a miscalculation are too grave."
Since the debt limit debate began in earnest, some Republicans have contended that the limit need not be raised to avoid a catastrophic default. Rather, they argue the government can prioritize needed interest payments on debt after hitting the limit to avoid a default, cutting spending elsewhere.
One group of senators, led by Sen. Jim DeMint (R-S.C.), told Geithner in a May letter that any default would be his fault, arguing that the government has ample funds to pay interest on debt without increasing the debt limit. In fact, not raising the limit would force the government to cut back on spending programs, they argued.
But such a notion relies on an "untested and unacceptably risky assumption," which is that financial markets would not adversely react to the United States shirking payments on other programs to make debt-service payments, Geithner said.
Furthermore, Geithner said that even if the prioritization idea would cover interest payments on debt, the government still would default.
In August, more than $500 billion of Treasury debt matures. Typically, the government issues fresh debt to procure the cash needed to pay the principal on the maturing debt. But if the debt limit were not raised and financial markets became spooked of Treasury bonds, there is no guarantee investors would be there to buy the new bonds, meaning the government would not able to make those principal payments, resulting in a default, Geithner siad.
He also pointed out that not a single budget proposal offered by either party is possible without an increase to the debt limit, adding that a failure to increase it in time would worsen the nation's fiscal woes by increasing the cost of borrowing.