WASHINGTON -- If Congress fails to hike the nation's borrowing limit by Aug. 2, it will be "lights out" on the government and the economy, Treasury Secretary Tim Geithner told Democrats in their meeting Friday.
Word of that message came Monday from Senate Majority Leader Harry Reid, who said in Senate floor remarks that Geithner laid out an extremely grim scenario if Congress does not boost the country's debt ceiling from the current $14.3 trillion.
Geithner has said publicly that the Treasury has been juggling the bills since May to avoid defaulting on an payments, but would exhaust all such measures on Aug. 2.
In his talk to Senate leaders, Geithner painted an even darker picture, Reid said.
"He said default would result in a complete 'loss of capacity to function as a government,'" Reid recounted Geithner saying.
"Those who say this crisis would be a blip on the radar are wrong," Reid said. "Default would be a plague that would haunt our nation for years to come. Our credit rating would take years to rebuild. The country would never be the same."
"If this country defaults on its obligations, Geithner said, it will be 'much worse than the Great Depression,'" Reid added. "And it would make the massive financial crisis of 2008 look mild. It will make what we just went through look like a quaint little crisis."
Senate Minority Leader Mitch McConnell (R-Ky.) countered that Republicans want to avoid a potential financial wreck in the future.
“On the one side are those who believe that failing to rein in spending now could be calamitous, and that a government which borrows 42 cents for every dollar it spends needs to sober up," McConnell said. "Washington needs strong medicine to heal its spending addiction now, not a false promise of it later."
And while he and Democratic leaders have been negotiating over a fail-safe plan to stave off a default, he warned that a tough new piece of legislation coming up in the House Tuesday to "Cut, Cap and Balance" the budget could represent the only shot at staving off default.
Democrats think the measure is even less acceptable than the budget produced this spring by Budget Committee Chairman Rep. Paul Ryan (R-Wis.).
“Not only is this legislation just the kind of thing Washington needs right now, it may be the only option we have if you want to see the debt limit raised at all," McConnell said, raising the stakes in the debate.
Insiders have suggested that the House will pass the bill and the Senate will not, but it will give GOP House members political coverage by letting them say they voted for a draconian solution before eventually backing the fail-safe measure.