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Treasury Secretary Timothy Geithner travels to Capitol Hill today with a warning for freshmen lawmakers: Vote to increase the government's credit limit or risk an economic catastrophe. Earlier this week, the House voted overwhelmingly against such increase. Some lawmakers are willing to accept an increase if it comes with deep spending cuts. Others say they believe the government can leave the debt ceiling unchanged without suffering dire consequences.
NPR's Scott Horsley reports.
SCOTT HORSLEY: The Treasury Department is already doing a financial juggling act, since bumping up against the current debt ceiling a couple of weeks ago. Officials think they can keep that up for about two more months.
But unless Congress votes to increase its borrowing authority by August 2nd, Assistant Treasury Secretary Mary Miller says the government won't be able to pay all its bills.
Ms. MARY MILLER (Assistant Secretary, Financial Markets, Department of Treasury): We believe that would be quite catastrophic. That has never happened in the history of the U.S. that we have deliberately defaulted on a debt instrument. To default on an obligation would shake the will of confidence of the global financial markets. I believe it would have very long-lasting effects. Once you took that step, you would be unable to ever say you didn't default on something.
HORSLEY: But not everyone on Capitol Hill is buying that doomsday scenario.
Senator PAT TOOMEY (Republican, Pennsylvania): Failure to raise the debt limit does not equate to a default on our debt at all.
HORSLEY: Republican Senator Pat Toomey of Pennsylvania suggests even if the government weren't able to pay all its bills this summer, it could avoid a default by making sure what money remains available goes to pay bondholders first. It's sort of like skimping on groceries in order to cover your mortgage.
In a speech to the American Enterprise Institute, Toomey acknowledged that would create some hardships for those who don't get paid. Think Social Security recipients or members of the Armed Forces. But he says it wouldn't be a financial disaster.
Sen. TOOMEY: A disruptive series of events is not the same as a catastrophe. And we ought to keep that very much in mind.
HORSLEY: But the Obama administration says risking disruptions is playing with fire. Treasury's Miller says government bondholders are likely to get spooked if anyone's payments are cut off. And when bondholders get nervous, the price they demand is higher interest rates from the government and everyone else.
Ms. MILLER: Treasury rates would certainly go up if people lost confidence in Treasury bills and bonds. And those costs, which may look like Wall Street costs, can become very Main Street in the sense that mortgage interest rates, consumer borrowing rates, small business borrowing would all be impacted by that.
HORSLEY: Republicans leaders insist that any increase in the debt ceiling be accompanied by cuts in future government spending. House speaker John Boehner pressed that point yesterday, after he and his fellow House Republicans met with President Obama.
Representative JOHN BOEHNER (Republican, Ohio): We had a very frank conversation. I thought it was productive. I'm looking forward to more serious conversations about how we reduce the deficit and the debt, and to get our economy going again and creating jobs.
HORSLEY: Many of the economic indicators in recent weeks have been worrisome, with a still sputtering job market and a nine percent unemployment rate -unlikely to drop much any time soon.
White House spokesman Jay Carney says even as the President Obama looks for ways to compromise with Republicans, on government spending cuts, he's trying not to slam the brakes on the fragile economic recovery.
Mr. JAY CARNEY (Press secretary, White House): The presidents view is that we should do nothing in these talks that undermines some of the foundation that we have to have in order to grow in the 21st century. And thats why he feels very strongly we need to protect investments in education, research and development, and infrastructure.
HORSLEY: House Republican leader Eric Cantor was skeptical of the president's priorities, when he recapped the meeting yesterday in the White House driveway.
Representative ERIC CANTOR (R-Virginia, Majority Leader): The president talked about a need for us to continue to, quote, unquote, "invest" from Washington's standpoint. And to a lot of us, that's code for more Washington spending -something that we can't afford right now.
HORSLEY: Vice President Biden has been leading a bipartisan team of lawmakers in search of a budget compromise, which could pave the way for spending cuts and a higher debt limit. The group is not scheduled to meet again, though, until a week from today. And with few signs of movement on either side, the Treasury's juggling act will continue.
Scott Horsley, NPR News, Washington.