Patt Morrison for May 4, 2011

What happens if the Fed stops paying its bills?

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Bill Pugliano/Getty Images

Treasury Secretary Tim Geithner at the Detroit Economic Club April 28, 2011 in Detroit, Michigan.

Last year, Congress set a spending limit of $14.3 billion and it is now coming very close to exceeding that limit. Treasury Secretary Timothy Geithner has warned that if the U.S. does not raise the debt ceiling, fiscal calamity will spread globally. Republicans are holding steadfast to promises made to conservative voters to cut and cap government spending at all costs. One conservative leader, former Congressional Budget Office director Douglas Holtz-Eakin, has broken ranks. Holtz-Eakin agrees with his conservative colleagues about the need to cut spending, but he argues that defaulting on U.S. debt will send the wrong message to foreign investors. At a time when the country needs international borrowing more than ever, Holtz-Eakin argues that the U.S. needs to protect its credit rating. Patt sits down with Holtz-Eakin to find out how he envisions raising a debt ceiling while also cutting government spending. Should investors be worried about the U.S. credit rating? After compromise between Republicans and Democrats has proven nearly impossible, will leaders on both sides of the isle be able to come together to avoid exceeding the limit they themselves set?


Douglas Holtz-Eakin, president of the American Action Forum, former director of the Congressional Budget Office, & former chief economic policy adviser to John McCain’s presidential campaign

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