With the possibility that the government might reach the debt ceiling becoming increasingly likely, the administration has moderated its scare tactics. Whereas before economic advisers were claiming that reaching the debt ceiling would result in an immediate debt default and economic catastrophe, Treasury Secretary Tim Geithner is now making the more modest claim that the government would only be pay the interest on its debt for eight weeks after the debt limit is reached (which he expects to happen mid-May).
Geithner is still not being honest with the public. In reality, the government could prioritize its payments and avoid a debt default for many months, if not up to a year. Geithner’s bluff is fairly transparent. After all, as recently as 2003, the Treasury continued to make interest payments and fund the government for more than two months after the debt ceiling was reached.
The administration’s wanton fearmongering on this issue wonders how much leverage Republicans have. With Geithner still issuing dire warnings that a failure to raise the debt limit (without extracting concessions first) would make the financial crisis look “modest in comparison,” while facing the need to raise the limit by up to $1 trillion just this fiscal year, it is obvious that the apocalyptic rhetoric is a ploy to trick the Republicans into folding their strong hand. Right now Republicans are focused on winning the negotiations over the continuing resolution, but the debt limit vote is the real opportunity to obtain some of the items on the conservative wish list.