26 Jul 2011

Timmy Geithner Confident US Politicians Will Agree Debt Deal

Timothy Geithner
US Treasury Secretary Timothy Geithner has said he is confident the White House and Congress will agree a deal to raise the US debt ceiling.
He said it was "unthinkable" the US would not meet its obligations on time.
Mr Geithner's comments to CNN come after talks between President Barack Obama and Congressional leaders on Saturday failed to make a breakthrough.
The US risks default on its $14.3tn (£8.7tn) debt without a deal to raise the borrowing limit before 2 August.
At this point the US Treasury could run out of money to pay all of its bills - which could lead to interest rate rises, threaten the US economic recovery and in turn the global recovery.
The US federal government is running a large budget deficit - equal to $1.3tn, or more than $4,000 per person, during the 12 months to June this year.
The borrowing is required to meet the government's agreed spending plans and because its ability to raise taxes is limited under current laws.
But the government must also comply with a law that limits the total amount of debt it can take on - the debt ceiling.
President Barack Obama and fellow Democrats have been seeking to hammer out a deal with Republicans who control the House of Representatives to cut the annual budget deficit in return for a rise in the total debt ceiling.

Who owns the $14.3tn debt?

  • US government owes itself $4.6tn
  • Remaining $9.7tn owed to investors
  • They include banks, pension funds, individual investors, and state/local/foreign governments
  • China: $1.16tn, Japan: $0.91tn, UK: $0.35tn
  • Deficit is annual difference between spending and revenue, $1.29tn in 2010
  • Congress has voted to raise the US debt limit 10 times since 2001
Source: US Treasury, May 2011, Congressional Research Service, Congressional Budget Office
Mr Geithner said that a Republican proposal to first raise the debt limit, and then negotiate spending cuts, was "irresponsible" and would not be agreed by Democrats.
'Reckless games'
The sticking point is the issue of taxation.
President Obama wants the debt reduction deal to include a combination of spending cuts and tax rises, but Republicans in both houses of Congress are strongly opposed to the latter.
Mr Obama was joined at the negotiating table on Saturday by his Vice-President Joe Biden, Republican House Speaker John Boehner, Democratic House Minority leader Nancy Pelosi, Democratic Senate Majority leader Harry Reid and Senate Republican leader Mitch McConnell.
Following the meeting, the White House urged Congress to "refrain from playing reckless political games with our economy... and do its job, avoiding default and cutting the deficit".
Both Mr McConnell and Mr Boehner issued statements saying they intended "to find a bipartisan solution to significantly reduce Washington spending and preserve the full faith and credit of the United States".
Aides said they expected to work through the weekend to come up with a bill that would be acceptable to both sides for Monday.
On Friday, Mr Boehner accused the president of moving "the goal posts", saying they had been close to a deal until Mr Obama demanded $400bn in tax increases on top of about $800bn in revenues that would have been reaped through a comprehensive rewrite of the tax code.
Mr Obama had declared his deal "extraordinarily fair", offering to cut $650bn from Medicare, Medicaid and other entitlements, as well as slashing $1tr in discretionary spending.
While Republicans in Congress are unwilling to consider raising new taxes, their Democrat counterparts are opposed to cutting popular healthcare and welfare programmes for pensioners and the poor.
A member of the UK government entered the fray on Sunday, with Business Secretary Vince Cable calling the Republican leaders "right wing nutters".
He said a US debt default would harm the global economy.
debt graphic

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