Tim Geithner: U.S. Debt Default Means ‘Lights Out’ And a New Depression

If US 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 on Friday.

Tim Geithner painted a grim picture of what our world will look like if Republicans in Congress force this nation for the first time in its history to default on its financial obligations. Photo: US Treasury Department/Flickr

Treasury Secretary Tim Geithner painted a picture of what our world will look like if Republicans in Congress force this nation for the first time in its history to default on its financial obligations. Geither told Democrats in their meeting Friday that if Congress fails to hike the nation’s borrowing limit by Aug. 2, it will be “lights out” on the government and the economy.  He said default would result in a complete “loss of capacity to function as a government.”

Even those who believe government should be small enough to drown in a bathtub have to admit that a total shutdown of even the most basic and essential functions of government is scary. It wouldn’t be good for the American people. And it certainly wouldn’t be good for our economy.

The Senate has no more important task than making sure the United States continues to pay bills for pre-existing obligations like Social Security. To ensure that American people meet this responsibility, the Senate will stay in session every day until Congress passes legislation that prevents the United States from defaulting on our obligations.

Geithner described how the 80 million checks cut by the Treasury every day could simply stop coming. The federal government would, in effect, go dark. Paychecks for troops in Afghanistan and Iraq and bases around the world could stop.

FAA towers could shut down. So could the FBI and the CIA. Border crossings could close. Safety inspections of the food Americans eat and the cargo that enters our ports could halt. Literally every function of government could cease. There would be no discussion of which operations and personnel were essential. All the payments would likely stop.

Senate Majority Leader Harry Reid 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. Tim Geithner 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.

Reid said that in his talk to Senate leaders, Geithner painted an even darker picture:”He said default would result in a complete ‘loss of capacity to function as a government.'”

Reid also added: “If this country defaults on its obligations, Geithner said, it will be ‘much worse than the Great Depression. 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.”

Mitch McConnell, Senate Minority Leader, affirmed that Republicans want to avoid a potential financial wreck in the future. McConnell stated: “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. Washington needs strong medicine to heal its spending addiction now, not a false promise of it later.”

While McConnell 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.). McConnell said:“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.” [Photo via US Treasury Department/Flickr; Story via The Hill and Huffington Post]

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