Geithner: Debt default would hurt global economy

And now comes the next big battle over money -- it involves raising the nation's debt ceiling. That's the amount of money the government is allowed to borrow. Think of it as the credit limit on your credit card. Right now, Uncle Sam's limit is $14.29 trillion. But he's already borrowed $14.26 trillion, meaning he's just $30 billion away from having his credit cut off.

The control room of the American debt machine is the U.S. Treasury's Auction Room, where it borrows billions every week from investors in the U.S. and around the world to keep the American government running. But if Congress fails to raise the debt ceiling, the Treasury's credit card would hit its limit. The room would shut down. And the U.S. government could go into default, CBS News correspondent Anthony Mason reports.

"The consequences of that would be catastrophic to the United States," Treasury Secretary Tim Geithner said in testimony to Congress.

Geithner before Congress - and in an interview again Thursday - warned the consequences would be worse than the financial crisis we just went through.

If the U.S. hits the ceiling, "it would shake the basic foundation of the entire global financial system," Geithner told CBS.

Because America's debt is the gold standard of the world, the U.S. has always paid back with interest.

"And if you default on the debt, which has never happened in our history, we have a whole different world. If you can't trust U.S. Treasury securities, what can you trust?" asked Ric Mishkin, a former governor of the Federal Reserve.

"This is what they do in countries like Argentina," said Mishkin. "This is not what we do in this country."

Interest rates would soar; the stock market would plummet. Geithner estimates, at the current rate of spending, we will hit the debt ceiling, $14.29 trillion, about May 16.

"Starting at the end of May, we start to run on fumes. And that's not something you want to do for an economy that's coming out of this severe a crisis," Geithner said.

The Treasury can buy about eight weeks through accounting measures. But by early July, it will run out of options.

"Then we have to stop paying benefits to veterans, recipients of Social Security, Medicare," Geithner said.

Geithner hopes it won't get pushed to the brink.

"You know, there are some people up there who want to try to take it to the brink, but that would be deeply irresponsible," said Geithner. "You can't let it get to close to that because, again, if you take it too far, then people will start to wonder whether we're gonna make it."

How much does the debt ceiling need to be raised?

The Treasury secretary said that depends how soon Congress wants to come back and vote on it again.

It's been raised five times over the last three years, on average $900 billion each time.

  • Anthony Mason

    CBS News senior business and economics correspondent; Co-host, "CBS This Morning: Saturday"