Geithner: U.S. must deal with budget woes or pay more

U.S. Treasury Secretary Timothy Geithner speaks at the Harvard Club in New York May 17, 2011.

WASHINGTON (Reuters) - Treasury Secretary Timothy Geithner said on Tuesday the country's debt situation was so severe that Congress must deal with it or face the risk the country will be charged much higher interest rates to borrow.

"There is no way of knowing how long financial markets will give the American political system to get ahead of this problem," Geithner said in prepared remarks for delivery to the Harvard Club in New York. "When confidence turns, it can turn with brutal force and with a momentum that is very difficult and costly to arrest."

Geithner, who is in the midst of intense negotiations with congressional Republicans over a budget, said a Republican-backed version in the House of Representatives "will not pass the Congress, now or in the future."

He urged lawmakers on both sides to work on a plan that will bring deficits down "gradually but dramatically" over a three-to-five-year period. The intent would be to get the budget deficit down to below 3 percent of GDP from the current level of about 10 percent.

"If we put our deficits on a path to get them below 3 percent of GDP by 2015 and hold them there, with reforms that politicians commit to sustain, then the federal debt held by the public will peak in the range of 70 to 80 percent of GDP, and then start to fall," Geithner said.

He said "debt caps" were needed to force politicians to take the actions needed for the country to begin living within its means.

"To do this, we are working to negotiate a multiyear framework of debt caps and targets, with a substantial down payment of specific cuts and policy reforms," Geithner added.

(Reporting by Glenn Somerville, editing by Dan Grebler)