Debt Ceiling Crisis Looms After Budget Deal
April 10, 2011— -- After a government shutdown was avoided on Friday with a $38 billion trimming from the 2010 baseline budget, lawmakers have a new hurdle to overcome: passing an increase on the federal debt limit to avoid defaulting on interest payments on the national debt -- a battle that will be over not billions, but a trillion dollars.
The federal debt limit stands at $14.294 trillion. In order to keep the government functioning, this must be raised significantly by May 16 -- or "catastrophic" consequences will result, according to Treasury Secretary Tim Geithner.
He said that this week's financial crisis was "modest in comparison" to what is coming down the road.
Without action by Congress, a number of government programs will wind up halted, limited or delayed -- including military salaries and retirement benefits, Social Security and Medicare payments, interest on the debt, unemployment benefits and tax refunds.
"Default by the United States would precipitate a crisis worse than the one we just went through," Geithner said to a Senate Appropriations subcommittee. "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," he said.
In order to avoid a default on interest payments, Congress must expand the debt ceiling another trillion dollars. The nine most recent increases since 1997 have averaged $977 billion in borrowing authority.
According to Geithner, any default on payments by the United States will lead to much higher interest rates and borrowing costs for Americans, while resulting in declining home values and reduced retirement savings for people across America.
