US Treasury Secretary Timothy Geithner has said that the debt ceiling should be abolished as soon as possible. He said that the debt ceiling was used as a lever for political advantage and that this was not a tenable strategy.
Geithner told Bloomberg TV: “It would have been time a long time ago to eliminate it. The sooner the better.”
Geithner said that it was up to Congress to do away with the limit since Congress introduced the limit in the first place. Geithner went on: "Only once, last summer, did people decide to use it to threaten default on the American credit for the first time in history as a tool for political advantage, and that's not a tenable strategy for the country." Geithner claims he will not stay on the job much longer and that he agreed to continue only until mid-January.
The US will again hit its debt ceiling by the middle of next February or March unless Congress raises it. As happened in 2011, there are some Republicans who are anxious to use the deadline to force the Obama administration to cut spending. This represents another likely conflict—with the accompanying gridlock—between Republicans and Democrats. If the debt ceiling were not raised, this would force large government spending cuts and the government could risk defaulting on debts. The effect on the economy would be devastating.
Last year, at the last moment, an agreement was reached to raise the debt ceiling. However, Republicans were able to force the Obama administration into cuts of $2 billion over ten years as the price of agreement. The business community was annoyed by the infighting and uncertainty it caused, and the economy lost jobs during the period of uncertainty.
The debt ceiling is just one more problem faced by the Obama administration. The immediate economic problem is to reach a deal to avoid the fiscal cliff. Over $1.2 trillion in spending cuts and tax hikes will kick in unless a deal to avoid this is reached before Jan. 1, 2013.