The “Biggest Contraction of the century” is finally here.
The debt crisis of the last decade, which has caused the United States to default on its debt at an unprecedented rate, is set to hit its climax on Thursday, when the Treasury Department will announce a new round of austerity measures to try to prevent another debt crisis in the coming months.
The White House said Thursday it was “ready to address the problem of rising interest rates and its impact on the economy,” but the news came as the Obama administration is trying to make good on a promise to put the country back on a path toward fiscal rectitude.
In a speech on Wednesday, Treasury Secretary Timothy Geithner said that the “debt ceiling has been breached” by Congress and that the federal government was “at risk of defaulting on $1.3 trillion in debt.”
The president has said he would “immediately” release the country from the debt ceiling, but the Treasury announced the new round Thursday, giving the Treasury’s budget director a chance to weigh in on whether that was an effective move.
“The president’s approach has been that we’re going to put in place measures to limit the impact on consumers and businesses, and then we’ll see what happens when that happens,” Geithners budget director, Kevin Hassett, told reporters.
“We’re not out of the woods yet.
We’re going into this with a great deal of confidence that we’ve got the tools in place to try and make sure that we do this in a way that’s going to create jobs and growth.”
The debt ceiling is scheduled to be raised by Congress each year since the fiscal cliff began in January 2011.
The last time the government ran out of money was in February 2008, when Congress voted to limit spending to levels set in the Budget Control Act.
Geithner had said last week that the Treasury was prepared to begin raising the debt limit, but that it would be up to Congress to approve any new measures.
On Wednesday, House Speaker Nancy Pelosi called for an “immediate and decisive” debt limit increase, calling the debt “the biggest threat to our economy.”
Geithners own office said that if the government cannot meet its obligations in the next few weeks, then it would consider other measures to boost economic growth.
Geertner has been working to put more fiscal restraint in place, and has made a number of proposals, including spending cuts and debt-restructuring.
He has also said that he is willing to negotiate over the next several weeks with Congress to avoid another debt ceiling crisis.
But the White House’s move on Thursday does not bode well for Geithson’s case that the United