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Geithner Warns US 'Running Out of Time' on Debt Issue

Treasury Secretary Timothy Geithner makes remarks after a meeting with Democrats about the debt limit, July 14, 2011

Treasury Secretary Timothy Geithner makes remarks after a meeting with Democrats about the debt limit, July 14, 2011

Top U.S. financial officials are issuing a new round of warnings about the potential catastrophe that awaits if lawmakers fail to raise the country's debt limit by August 2.

Treasury Secretary Timothy Geithner told reporters Thursday the country is "running out of time" to raise the $14.3 trillion borrowing limit.

He said Washington needs to meet its financial obligations and "it's time we move."

Earlier, Federal Reserve Chairman Ben Bernanke told a Senate committee any failure to raise the debt limit would have a "calamitous outcome." He warned excessive spending cuts could damage the fragile economic recovery.

Talks stalled again

Top lawmakers are scheduled to meet with President Barack Obama later Thursday at the White House as the debt talks enter a fifth day, stalled over sharp disagreements about the need to raise taxes.

The Senate's top Democrat Thursday lashed out at one of the lead Republican negotiators. Senate Majority Leader Harry Reid called House Majority Leader Eric Cantor "childish" and said he should be excluded from further talks. On Wednesday, Cantor accused the president of storming out of a negotiating session. Cantor himself had walked out of earlier talks with Vice President Joe Biden.

The top Republican in the Senate, Minority Leader Mitch McConnell, criticized the president's stance, telling colleagues his party will "not be reduced to being tax collectors for the Obama economy."

If the borrowing limit is not raised by August 2, the U.S. may have to stop payments on some of its obligations.

The Fed chairman said failure to raise the debt ceiling would be a "self-inflicted wound" and would erode global confidence in the United States.

Default consequences

Moody's Investors Service warned Wednesday that the U.S. risks losing its top credit rating if lawmakers fail to reach a deal that increases the debt limit and decreases the deficit. A downgraded U.S. bond rating would likely lead to higher interest rates for U.S. loans.

Bernanke said a downgrade could lead to a "vicious cycle" in which higher interest rates make the country's debt increasingly difficult to pay down.

There are also growing calls from businesses and banking firms for a solution. The head of one of the biggest private U.S. financial firms Thursday told reporters it is "imperative that the debt ceiling be fixed."

JP Morgan Chase Chief Executive Jamie Dimon said it would be irresponsible for the country to default on its debt because the result could be catastrophic.

A Chinese credit rating agency said Thursday it has placed U.S. sovereign debt on a negative watch. Dagong Global Credit Rating Company says it will downgrade U.S. credit ratings "if there is no significant change in its repayment ability within the period of observation." China is the biggest buyer of U.S. sovereign debt.

Some information for this report was provided by AP, AFP and Reuters.