Republicans have effectively ceded the debt ceiling as a political weapon, opening what could be a more productive and less economically dangerous period of fiscal debate, Treasury Secretary Timothy Geithner said in an exit interview with POLITICO.
Geithner, who leaves the administration on Friday, said the move by House Republicans to support a three-month waiver of the debt limit means future fiscal negotiations will likely pose less of a risk of economic calamity if they fail.
"It certainly looks like they decided that it's not effective leverage, because you can't threaten the unthinkable and expect to get any leverage," Geithner said. "So, I think that's encouraging. But to be fair, I don't think it's clear what their next step is on this issue."
Republicans took issue with Geithner's characterization, saying the debt limit would continue to play at least some role in fiscal negotiations.
"The No Budget No Pay Act put Republicans on the strongest ground possible to achieve the spending cuts needed for any long-term debt limit increase," said Brendan Buck, spokesman for House Speaker John Boehner. "The debt limit exists to force Washington to deal with its budget -- just as American families must do -- and we'll continue to use it that way."
Beyond the debt limit issue, Geithner firmly ruled out ever serving as chairman of the Federal Reserve, something that has been mentioned by people close to the outgoing secretary as a possibility down the road.
"Not a chance," he said. "I have great respect for the institution, but that will be someone else's privilege."
Geithner is returning to New York to be with his family and said he has no immediate plans beyond relaxing and traveling with his wife.
The outgoing Treasury secretary is the last departing member of President Barack Obama's original top economic team, which came into office with financial markets in turmoil, the economy reeling and unemployment spiking.
Four years later, the economic situation is far less dire, but unemployment remains stubbornly high and it will be up Obama's new economic team to figure how to best keep the economy growing while finding a way to cut deals with Republicans over taxes and spending as the nation's debt dominates the agenda.
Geithner, whom Obama leaned on heavily, said he believes he is leaving office with the economy well on the way to sustained recovery.
"The president makes fun of me of always saying we're only in the second inning," he said. "But in terms of the American economic recovery, we're past the seventh-inning stretch."
Geithner added that more stimulus spending -- something unlikely to get through the GOP-led House -- coupled with long-term deficit reduction would be the best prescription for boosting economic growth and bringing the 7.8 percent jobless rate more quickly.
"I'm a big supporter of the value of a very substantial long-term infrastructure financing plan, very good economics to that," he said. "And of course over time it would be good for the country, better for confidence, to put in place a carefully designed balanced set of long-term fiscal reforms, tax reforms, that's good for growth."
He added that it is "important people remember that we still have some ways to go to repair the damage" from the 2008 financial crisis and noted that while it has limited political support, the economic argument for more stimulus is clear.
"We're at this unique moment in the sense that the world has a lot of confidence in the United States," he said. "And the world is going to be willing to, for some time, not indefinitely, but for some time [be] willing to lend us a substantial amount of money at relatively low interest rates and we should make sure we can take advantage of that particular privilege right now to invest in things that make the country stronger in the future."
The outgoing Treasury secretary cited helping the president manage through the financial crisis and avoiding "a second Great Depression" as the proudest achievements of his tenure at Treasury.
And he rejected the argument from critics who support stronger Wall Street reform that so-called too-big-to-fail banks remain a mortal threat to the financial system.
"I think people need to understand that you can wound but you can never kill moral hazard in a financial system," Geithner said, referring to the idea that financial players will always take at least some excess risk hoping for a federal backstop. "What you want to do is make sure you can reduce the risk that that leads to future financial crises, and we've been very careful and very successful to put in place I think the most credible, toughest safeguards any country has."
Geithner cited increased regulatory capital, more strictures on borrowing by banks, penalties for size and orderly liquidation authority as strong bulwarks against the possibility of any future taxpayer funded bailouts.
"We are in a much better position than we were before this crisis to withstand the failures of large institutions in the future," he said. "It doesn't mean we're going to be invulnerable to crises and it doesn't mean that we're not going to have future financial crises, but we're in a better position to manage those challenges."
In addition to travel and some of his favored leisure time activities (surfing and tennis, among others), Geithner plans to spend more time reading. He cited a pair of books: Walter Isaacson's "Benjamin Franklin: An American Life" and "The Yellow Birds," a novel written by Iraq war veteran Kevin Powers, as high on his list.
Geithner, 51, began his work at Treasury in the midst of crisis and recession. As the economy slowly improved, he faced a long period of tense fiscal showdowns with the GOP House majority elected in the 2010 midterm elections. Geithner faced a debt-limit crisis in the summer of 2011 that led to the first credit downgrade in American history.
Amid all this, Geithner and the staff at Treasury worked on unfinished projects, including tax and housing policy reform that the outgoing secretary hopes Treasury nominee Jack Lew will be able to finish. On tax reform, Geithner said he still holds out hope it will get done in 2013.
"I do think that it should be possible for this country, because we're capable of great things," he said. The goal of reform would be to "clean up the muck in the current tax system and reduce the distortions of unfairness and create a better mix of incentives for investment and try and make sure we preserve an appropriate and progressive system," Geithner said. But he added that "to be realistic, people should understand that it's not going to be that popular, it's going to be very difficult to do."
In his final days, Geithner has been getting around to as many Treasury offices as possible to thank people and talk about the work of the last four years.
"I got to work for a president I deeply admire and I got to come serve with a group of people that I first worked with, I don't know, more than 20 years ago as a young civil servant," he said. "We did some very hard and consequential things together, and I want to make sure they're justifiably proud of what they did, even though I know we have a lot of unfinished business, a lot of challenges ahead."
This article first appeared on POLITICO Pro at 5:19 a.m. on January 25, 2013.
The Gazette now offers Facebook Comments on its stories. You must be logged into your Facebook account to add comments. If you do not want your comment to post to your personal page, uncheck the box below the comment. Comments deemed offensive by the moderators will be removed, and commenters who persist may be banned from commenting on the site.