June 3 (Bloomberg) -- Sarah Palin dismissed warnings about the need to raise the nation’s $14.3 trillion debt ceiling, saying that a failure to increase the limit would not result in an unprecedented government default.
“I don’t believe the debt ceiling has to be raised,” Palin told reporters last night in Seabrook, New Hampshire. “We have to service our debt first and prioritize wisely, cut the budget and cut excess spending.”
Treasury Secretary Timothy Geithner, President Barack Obama and scores of business leaders have warned that a failure to raise the limit would cause a first-ever federal default that would have devastating consequences on the fragile economy.
Senator Rand Paul of Kentucky and other rank-and-file Republicans backed by Tea Party activists say such predictions are an attempt by the Obama administration to force their leaders into a deal that falls short of the spending cuts being sought by the party.
Palin urged Republicans to stand strong in their opposition, saying Geithner was making “false statements” about the economic impacts of failing to raising the limit.
“If the debt ceiling were to be increased based on what I believe to be Timothy Geithner’s false statements to the American public -- that a catastrophe would befall us all if the debt ceiling isn’t raised -- a failure of leadership in the House would be if we were to cave and believe that,” she said.
Reassuring Wall Street
Republican leaders are demanding that Obama agree to steep spending cuts in return for raising the government’s debt ceiling. Still, in private meetings over the last few weeks, they’ve sought to reassure Wall Street and business leaders that they intend to raise the limit.
The urgency to reach an agreement increased yesterday after Moody’s Investors Service said it may put the U.S. government debt rating on review for a downgrade if no progress is made on increasing the government debt limit in the coming weeks. Yet, the issue remains politically treacherous for Republicans who face voter skepticism about the need to raise the limit.
Only 35 percent of respondents to a Washington Post-Pew Research survey said they were concerned about risk of a default and economic damage. Almost half said they were more alarmed by the prospect that the debt could grow beyond the current limit, according to the poll taken May 19-22.
Republican presidential candidate Mitt Romney of Massachusetts said House Republicans were doing a “heroic job” on the debt-ceiling issue.
“They’re using every source of their strength to fight the excessive spending of this administration and I applauded them that,” he said, at a town-hall meeting in Manchester, New Hampshire.
Still, he avoided questions from reporters about whether he would support an increase and the economic impacts of a failure to raise the limit.
“I want to make sure we make dramatic reductions,” he told a voter after the event.
Geithner is using what he calls “extraordinary measures” to avoid exhausting the nation’s borrowing authority, and he has said that he will run out of options for avoiding default by Aug. 2.
Yesterday, he met with freshman House members at the Capitol and told reporters afterward, “I’m confident two things are going to happen this summer. One is we’re going to avoid a default crisis, and we’re going to reach agreement on a long- term fiscal plan.”
In a May 13 letter, Geithner said a failure to increase the debt limit would “force the United States to default on its obligations” and sketched out dire consequences, from a plunge in U.S. household wealth to the potential for another financial shock that could threaten the global economy as well as millions of American jobs.
“This would be an unprecedented event in American history,” Geithner wrote in response to an inquiry by Democratic Senator Michael Bennet of Colorado. “A default would inflict catastrophic, far-reaching damage on our nation’s economy, significantly reducing growth, and increasing unemployment.”
--With assistance from Julie Hirschfeld Davis, Julianna Goldman, and Catherine Dodge in Washington. Editors: Robin Meszoly, Mark Silva
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