T7892

DEPARTMENT OF THE TREASURY
WASHINGTON, D.c.

SECRETARY OF THE TREASURY

January 14, 2013

The Honorable John A. Boehner
Speaker

U.S. House of Representatives
Washington, DC 20515

Dear Mr. Speaker:

I am writing to provide additional information regarding the extraordinary measures Treasury
has undertaken in order to avoid default on the nation’s obligations.

Treasury currently expects to exhaust these extraordinary measures between mid-February and
early March of this year. We will provide a more narrow range with a more targeted estimate at
a later date. Any estimate, however, will be subject to a significant amount of uncertainty
because we are entering the tax filing season, when the amounts and timing of tax payments and
refunds are unpredictable. For this reason, Congress should act as early as possible to extend
normal borrowing authority in order to avoid the risk of default and any interruption in
payments.

If the extraordinary measures were allowed to expire without an increase in borrowing authority,
Treasury would be left to fund the government solely with the cash we have on hand on any
given day. As you know, cash would not be adequate to meet existing obligations for any
meaningful length of time because the government is currently operating at a deficit.

The U.S. government makes approximately 80 million separate payments per month. These
include payments for Social Security; Supplemental Security Income; Medicare; Medicaid;
national security needs, including military salaries, military retirement, veterans’ benefits, and
defense contractors; income tax refunds; federal employee salaries and retirement; law
enforcement and operation of the justice system; unemployment insurance; disaster relief; goods
and services sold to the government under contracts with small and large businesses; and many
others. If Congress does not act to extend borrowing authority, all of these payments would be at
risk. This would impose severe economic hardship on millions of individuals and businesses
across the country.

It is important to point out that extending borrowing authority does not increase government
spending; it simply allows the Treasury to pay for expenditures Congress has previously
approved. Failure to meet those obligations would cause irreparable harm to the American
economy and to the livelihoods of all Americans. Even a temporary default with a brief


interruption in payments that Congress subsequently restores would be terribly damaging, calling
into question the willingness of Congress to uphold America’s longstanding commitment to meet
the obligations of the nation in full and on time. It should also be noted that default would
increase our borrowing costs and damage economic growth and therefore add to future budget
deficits, not decrease them. This is why no President or Secretary of the Treasury of either party
has ever countenanced even the suggestion of default on any legal obligation of the United
States.

Protecting the full faith and credit of the United States is the responsibility of Congress because
only Congress can extend the nation’s borrowing authority. No Congress has ever failed to meet
that responsibility. It must be understood that the nation’s creditworthiness is not a bargaining
chip or a hostage that can be taken to advance any political agenda; it is an essential
underpinning of our strength as a nation. Threatening to undermine our creditworthiness is no
less irresponsible than threatening to undermine the rule of law, and no more legitimate than any
other common demand for ransom.

In an address to the nation in 1987, President Reagan said, “Unfortunately, Congress consistently
brings us to the edge of default before facing its responsibility. This brinkmanship threatens the
holders of government bonds and those who rely on Social Security and veterans benefits.
Interest rates would skyrocket. Instability would occur in financial markets and the federal
deficit would soar. The United States has a special responsibility to itself and the world to meet
its obligations. It means we have a well-earned reputation for reliability and credibility — two
things that set us apart in much of the world.”

President Obama has put forth detailed proposals to restore fiscal responsibility to the federal
budget, and he strongly believes Democrats and Republicans should join together to reduce our
deficits. In the meantime we must protect America’s creditworthiness by ensuring that our
government can pay the bills it has already incurred. Therefore, I respectfully urge Congress to
meet its responsibility to the country by extending normal borrowing authority well before the

risk of default becomes imminent.
a

Timothy@/ Geithner

Identical letter sent to:
The Honorable Nancy Pelosi, House Democratic Leader
The Honorable Harry Reid, Senate Majority Leader
The Honorable Mitch McConnell, Senate Republican Leader

cc: The Honorable Dave Camp, Chairman, House Committee on Ways and Means
The Honorable Sander M. Levin, Ranking Member, House Committee on Ways and Means
The Honorable Max Baucus, Chairman, Senate Committee on Finance
The Honorable Orrin G. Hatch, Ranking Member, Senate Committee on Finance