Tuesday, April 05, 2011

Geithner on Default

What follows is Congressional testimony by Treasury Sec Tim Geithner regarding his views on Federal default:
Default by the United States would precipitate a crisis worse than the one we just went through. I think it would make the crisis we went through look modest in comparison. It would force us of course to cut critical payments to our seniors and it would be a reckless, irresponsible act to this country. I find it inconceivable that the Congress would not act to increase the limit.

It would be catastrophic. I mean, if you call into question the willingness of the government of the United States to meet its obligations, you will shake the basic foundation of the entire global financial system. It is inconceivable that America would do that. And of course I am totally confident that Congress will act to avoid that.

It will raise dramatically the borrowing costs permanently for all Americans. Every business for a very long period time would face a much higher cost of borrowing. Every family would face a much higher cost of borrowing. Unemployment would rise dramatically. Thousands if not hundreds of thousands of businesses would fail. And of course you would shake the confidence of the world in U.S. financial assets and Treasuries. It would be a deeply irresponsible act, again inconceivable.
Clearly, Tim Geithner is not in favor of a national default -- that leaves austerity measures (as in spending cuts and tax increases) and monetary expansion (as in inflation) as the only remaining courses of action for fiscal policy-makers. The future of Federalism hangs in the balance...

Source: Geithner: Raise Debt Ceiling or Risk Another Financial Crisis (2011, April 5), Martinsville Media.

PS: I suppose the US could instead "eat" its way out of this economic crisis by building new businesses that can compete in the global marketplace, but that's just a suggestion...

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