Tim Geithner: A Lot Of People Have The Dangerous Illusion That Defaulting On Our Debt Would Balance The Budget

Tim Geithner

Tim Geithner spoke to the Dartmouth Sophomores who are at school for their “Sophomore Summer” last week about why the debt ceiling debate is at a standstill.

“We run out of borrowing capacity August 2,” he said, “and nobody in Congress likes to say that they voted to raise the debt ceiling. So to raise the debt limit, to get the vote for that, people want to say that they voted for something that restores some responsibility to the fiscal position – a totally reasonable thing. So we’re trying to negotiate that.”

Why is negotiating taking so long?

Geithner explains that it’s “because there’s a little danger in this because it’s a very unpopular vote, and as you’ve seen, cutting spending and raising taxes [which are also on the table] is not popular either. So you combine those two things and it doesn’t make it any easier.”

He said that ultimately, it must be raised – and ASAP.

“And there’s a big risk in miscalculation now because there are a lot of┬ápeople on both sides of the political spectrum would rather have a fight than actually do something and there’s a lot of people living with this [dangerous] illusion that somehow, if we defaulted on our debt, and stopped paying our obligations, that’d be a way to balance our budget. No responsible person believes that. And the leadership of the Congress understand that’s not possible. And it’s important and even the speaker of the House and the minority leader of the Senate say that we want to get this done as soon as possible so that we don’t put the country in the position of taking too long and causing concern around the world that America might decide that it won’t meet its obligation. It’d be devastating to the economy to let that concern build up.”

On how we got into such deep debt:

“We squandered the surpluses we had at the beginning of the last decade, spent them, expanded the commitments by the government without paying for them, went out and borrowed trillions of dollars, dug ourselves a huge hole, and we no longer have the luxury of that kind of a “keep deferring it” approach to the future … anything we do now is going to have to be constrained to set of choices and if we have a negative surprise in the economy again, we’re going to have to make it up, we’re going to have to temperately borrow, that’s what governments do in a recession, but we’re going to have to at some point pay off that debt so we stay on this path of sustainability.”

The full interview:

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