Geithner to meet Republican skeptics on debt limit

By Richard Cowan

WASHINGTON (Reuters) - Treasury Secretary Timothy Geithner meets an influential group of freshman Republican lawmakers on Thursday to try to improve chances that Congress will increase his borrowing authority and prevent a government default.

The session with the 85 or so Republicans elected in November on a pledge to deeply cut government spending comes in the midst of slow-going White House-led negotiations with Congress over a deficit-reduction deal.

Warnings from President Barack Obama's aides about the need to raise the debt limit have fallen on deaf ears among many Republicans, who are skeptical of the talk of a potential catastrophe if that step is not taken by August 2.

Geithner is likely to hear some blunt talk from the freshman Republican members of the House of Representatives, many of them conservative Tea Party activists, who could hold up a vote to raise the $14.3 trillion statutory limit.

"Many of them campaigned and were elected by telling their constituents what they want to hear and what many of the freshmen believe: that by simply cutting up the nation's credit card, we can immediately start living within our means," said William Galston, a scholar at the Brookings Institution.

A face-to-face meeting is a chance for Geithner to make the case that the debt-limit vote is needed to address spending that has already been incurred and that with financial markets already shaky, a failure to lift the ceiling could further unsettle investors and risk grave harm to the economy.

Geithner is at ground zero in Washington's fight over how to clean up the fiscal mess characterized by the $14.3 trillion debt and a $1.4 trillion deficit just this year.

"After the meeting I believe Secretary Geithner will see how serious we are as a freshman class about getting our debt and deficit under control so we can get our economy going again," said Representative Kristi Noem.

Noem, one of the tough "mama grizzlies" touted by ex-Alaska Governor Sarah Palin, told Reuters she hopes Geithner comes armed with some "significant spending cuts and reforms."

The first-term congresswoman from South Dakota might be disappointed as those kinds of details are still to be worked out by Vice President Joe Biden and a bipartisan group of six lawmakers who are in the early stages of spending-cut talks.

'AN HONEST DISCUSSION'

Republicans, and some Democrats, are demanding an outline for trillions of dollars in spending cuts before allowing any increase in the Treasury Department's borrowing authority.

The handful of freshmen House Democrats also are invited to Thursday's meeting with Geithner.

"Having the Treasury secretary personally (attend), take their questions seriously and explain the consequences (of not raising the debt limit) ... could change some minds," said Andy Laperriere, a policy analyst for International Strategy and Investment who follows Washington for investors.

"It's showing a measure of respect for this group that will pay dividends," he said.

It also will be an opportunity for the freshmen to explain to Geithner "vividly why it is so difficult to vote for this (debt limit increase) back home," Laperriere added.

Without a debt limit increase, either on August 2 or some later date, Geithner likely would have to make decisions on which bills to pay. He could decide to delay Social Security benefit payments to retirees, withhold military pay, sell some government assets or not pay off government bond-holders.

Some 97 House Republicans, including many freshmen, support a bill that would require Treasury to ensure that its debt obligations are met before paying other accounts.

Freshman Representative David Schweikert, questioned whether a delay in raising the debt limit would increase government borrowing costs, as the administration has warned.

"It would be nice to have an honest discussion of what the debt ceiling means ... and what we can do on prioritizing (Treasury) payments," Schweikert said.

Another House freshman, Republican Mike Pompeo, said Geithner "set August 2 as the date that bad things happen. I want to hear from him what that means from an operational matter as the secretary of the Treasury."

Pompeo said if the administration agrees to serious spending cuts -- immediately and in the medium-term -- and even closes some tax loopholes, then "most certainly" he would vote for raising the debt limit.

(Additional reporting by Andy Sullivan and Rachelle Younglai; editing by Bill Trott and Mohammad Zargham)