U.S. Treasury Secretary Timothy F. Geithner said budget deficits threaten to erode the nation’s economy and security and can’t be reduced with “magical thinking.”

“Neither Congress nor the administration should be able to use unrealistic assumptions about future economic growth or future political courage, or other forms of magical thinking, to minimize the magnitude of the reforms that will be necessary,” Geithner said Tuesday in a speech at the Harvard Club in New York.

Geithner said U.S. “fiscal problems are so pressing that they threaten to undermine the foundations of our future economic strength” and the country’s ability “to protect our national security interests.”

Lawmakers and the Obama administration are trying to reach a bipartisan accord on cutting long-term deficits as part of a plan to raise the legal limit on the national debt. Senate Republican leader Mitch McConnell of Kentucky said his party wants “significant” cuts in spending and no tax increases as a condition for lifting the limit.

In response to a question, Geithner said the U.S. benefits from global confidence in the dollar, especially during times of financial and economic stress when investors turn to the currency as a safe haven.

“That is an important thing we want to preserve and protect about the United States,” he said. He declined to comment on recent investment trends for the dollar and other currencies.

Debt Ceiling

On the debt ceiling, the U.S. was $25 million under the $14.294 trillion limit as of Monday, according to Treasury data released Tuesday. Geithner said Monday he had taken measures to stay below the limit until Aug. 2.

The ceiling “relates only to commitments we have made in the past,” Geithner said. “Rather than debating whether we should pay our past bills and whether default would in fact be so bad; rather than designing schemes to allow us to continue to make interest payments by breaking our commitments to seniors and veterans, we should be working together to narrow our differences on how to solve the causes of future deficits.”

Geithner wrote lawmakers to say he had declared a “debt issuance suspension period,” which allows him to free up borrowing room from the Civil Service Retirement and Disability Fund and the Government Securities Investment Fund. The steps, widely expected as Republicans and Democrats argue over when and how to raise the debt cap, won’t affect retirees or government operations.

‘Not an Option’

Geithner reiterated that “the debt limit must be increased. It is simply not an option for Congress to evade the basic responsibility to protect America’s creditworthiness.”

In his first public comments related to the arrest over the weekend of International Monetary Fund Managing Director Dominique Strauss-Kahn on sexual assault and attempted rape charges, Geithner said the IMF needs to get its leadership in place because its chief is “obviously not in a position” to run the lender. Geithner also said John Lipsky, the IMF’s acting managing director, is competent and capable.

On fiscal issues, Geithner said the administration’s effort to overhaul the corporate tax code to reduce deductions and loopholes likely won’t be completed in the next two months because it is trying to tackle broader budget issues.

“We’d like to take a run at doing this ahead of the election,” he said.

Geithner said the U.S. should get its deficit below 3 percent of gross domestic product, from 10.9 percent of GDP projected for the current fiscal year ending Sept. 30. The U.S. also needs a “debt cap so that politicians cannot choose to live with unsustainable deficits,” he said.

Speaking later on a panel after a screening of the HBO film “Too Big to Fail,” Geithner said Europe has the capability to handle the region’s debt crisis. “They just have to do it,” he said.