As a showdown over raising the U.S. debt limit seems inevitable, government officials have launched a new series of warnings to Congress.
If the $14.3 trillion ceiling isn't raised, the country could be forced to default on its debt, Federal Reserve chairman Ben Bernanke said Thursday. Further, a proposed plan to stay current on debt while not raising the limit just wouldn't work, and would harm the economy, Treasury secretary Timothy Geithner said. And when Congress uses threats of not raising the limit as a political bargaining chip, it's playing a recklessly dangerous game, chief of staff William Daley said.
The national debt, currently just over $14 trillion, is growing, as the U.S. borrows more money to fund its obligations. The government expects to hit the $14.3 trillion limit somewhere between April 5 and May 31. When that happens, if the limit isn't raised, the U.S. would have difficulty issuing new bonds. With debt payments coming due, and without money to pay them, the country would likely have to miss payments.
Such an event would likely spur investor panic, dealing untold damage to the global economy.
"That would be the first default in history caused purely by insanity," Austan Goolsbee, chairman of the president's Council of Economic Advisors said in January.
The debate over the debt ceiling has run headlong into the debate over government spending. As concern over the Federal deficit mounts, and as the country steadily borrows more money, some lawmakers have portrayed the debt limit as a tool to reign in government excess. Keeping it at the current level would force the government to tighten its belt, the argument goes.
"We need to send a strong message," Senator Rand Paul (R-Ky.) said in November, explaining why he would not vote to raise the debt limit.
Senator Pat Toomey (R-Pa.) has proposed an alternative to raising the debt limit, a plan that would aim to prevent default by prioritizing payments to bondholders. Democrats have labeled the plan, which would starve a host of government programs, the "Pay China First Act."
Geithner also condemned the plan, saying it would be "quite harmful."
Obama administration officials have become increasingly frustrated with what they perceive as an effort on the part of some lawmakers to hold the country hostage, by threatening to keep the debt limit where it is.
"This typical Washington game of threatening and trying to leverage off the debt would be very dangerous for the markets," Daley said, according to Bloomberg.
Bill Gross, who oversees the world's biggest bond fund at Pacific Investment Management Co. (and who, it should be noted, has a horse in this race), sharply criticized the Congressional movement against raising the debt limit.
"Obviously, I'm all for a move to a balanced budget over time," he said late last month. "But this is like imposing the death penalty for shoplifting."