Treasury Delays 'Dangerous' Debt-Limit Deadline

Amid an escalating political fight over the legal limits on U.S. government borrowing, the Treasury today pushed back the deadline for a "catastrophic" default to midspring, citing an unexpected increase in projected tax revenue.

Congressional Republicans have refused to join Democrats in raising the legal debt ceiling from the level of $14.29 trillion set by Congress a year ago unless President Barack Obama promises broad spending cuts. The showdown risks upsetting financial markets as well as the country's debt rating.

United States Secretary of the Treasury Timothy Geithner

Michel Euler, AP

Not increasing the debt limit "would have catastrophic economic consequences," Treasury Secretary Timothy Geithner said in a letter to Senate leaders.

In response, the Obama administration has issued a series of dire warnings about what would happen if the U.S. couldn't pay back the loans embodied in Treasury bonds.

"Never in our history has Congress failed to increase the debt limit when necessary," Treasury Secretary Timothy Geithner said in a letter to Senate leaders last month. "Default would effectively impose a significant and long-lasting tax on all Americans and all American businesses and could lead to the loss of millions of American jobs. Even a very short-term or limited default would have catastrophic economic consequences that would last for decades."

But Republicans have suggested they will block efforts to increase the deficit unless the Obama administration makes serious compromises.

During the official Republican response to the president's State of the Union address, newly installed House Budget Committee Chairman Paul Ryan said increases in the debt limit are a sign that the federal government spends too much.

"We believe the days of business as usual must come to an end," said Ryan, R-Wis. "Endless borrowing is not a strategy. Spending cuts have to come first."

Geithner said last month that with outstanding debt already at $13.95 trillion in early January, the Treasury estimated it will reach its borrowing limit as early as March 31 and definitely before May 16.

Today, Treasury said the upward revision in forecasts for tax revenue and a projected downward change in the amount of bonds needed by the Social Security and Medicare trust funds allowed it to push back that estimate to between April 5 and May 31.

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Geithner was meeting with Senate Majority Leader Harry Reid and other senior Senate Democrats today on Capitol Hill to discuss the matter.

Meanwhile, White House Chief of Staff William Daley warned that prolonged suspense about the debt-limit increase will be bad for financial markets and the economy.

Any failure by Congress to raise the limit could be "very dangerous" and have "enormous potential negative impacts on the markets," Daily said at a newsmakers' breakfast convened this morning by Bloomberg.

"To go through a traumatic sort of vote would have enormous potential negative impacts on the markets," he said. "To sort of play this typical Washington game of threatening and trying to leverage off the debt would be very dangerous for the markets."