With a fight looming over raising the U.S. federal debt limit, some top officials have begun to reassure the public that the country will avoid a default.
On Sunday, Treasury Secretary Tim Geithner said on ABC that Republicans in Congress have said they will raise the debt ceiling. Geithner, who has repeatedly warned Congress that a failure to raise the borrowing limit could result in a disastrous default by the U.S. government, described a meeting in which Republican lawmakers told President Barack Obama they would not "play around" with this debate.
The next day, Austan Goolsbee, chairman of the White House Council of Economic Advisers, expressed similar sentiments, saying on Bloomberg television that it was already "quite clear" that the federal government would resolve the debt limit issue.
Both reassurances come after months of warnings about the dire consequences of leaving the debt limit at its current $14.3 trillion ceiling, not allowing the Treasury to increase borrowing.
Consequences of that default would likely be devastating for the global economy. Treasury yields would rise, causing the cost of borrowing for the U.S. government, and for all of its citizens, to likely skyrocket. Markets around the world might then be thrown into panic, with such an event possibly touching off an economic crisis far worse than the current recession, Geithner recently told Congress.
Faith in the U.S. dollar, however, continues abroad, as the two countries with the largest holdings of U.S. debt, China and Japan, expressed confidence in the investment. Both countries have a large stake in the debt ceiling issue: were the U.S. to default, the value of their Treasury holdings would erode the value of their investment. Still, U.S. Treasury bills remain "attractive" in the eyes of the Japanese finance minister.
"The United States is tackling fiscal issues in various ways, so I still think U.S. Treasuries are basically an attractive product for us," said Japanese Finance Minister Yoshihiko Noda, according to Reuters.
The first debt ceiling deadline is in mid-May, Geither said before Congress this month. If the limit is not raised at that point, the Treasury will begin a series of emergency measures to avoid missing a debt payment. After that, a default could come as early as July assuming a deal is not met.
Republican lawmakers have tried to use the debt limit as a means of enforcing fiscal austerity, saying they will not vote to raise it unless Democrats grant concessions. In response, top economic officials in the Obama administration have criticized Congress for infusing politics into this crucial economic debate. On Sunday, though, Geithner said he knew Congress understood the stakes.
"I want to make it perfectly clear that Congress will raise the debt ceiling," he said on ABC.
Lawmakers locked in stalemate, Standard & Poor's cut its outlook for U.S. debt on Monday, saying a downgrade from the U.S.'s current AAA rating could come if lawmakers don't agree on a plan by 2013 to reduce the federal deficit and debt.
Last week, President Obama outlined a plan that would reduce the deficit by $4 trillion over the next 12 years.