U.S. might be unable to pay bills as of Oct. 17
Treasury Secretary Jack Lew stepped up pressure on Congress to avert a potential default, telling lawmakers in a letter that measures to avoid breaching the debt ceiling will be exhausted on Oct. 17.
The New York Times
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Seattle Times news services
WASHINGTON — The Treasury has handed Congress an urgent deadline: Oct. 17.
On that day, unless Congress were to raise the debt ceiling, the Treasury would have only $30 billion cash on hand, putting the United States on the precipice of an unprecedented default, Treasury Secretary Jack Lew said Wednesday.
That’s a slightly worse financial position than Treasury predicted last month and adds to the pressure on Congress to increase the government’s borrowing cap soon to avert a first-ever U.S. default on its obligations.
The threat of a financial crisis has become entangled in the budget and financial negotiations on Capitol Hill, where legislators are engaged in a partisan battle that has led to a budget impasse that could shut down the federal government starting Tuesday.
In a letter to Speaker John Boehner of Ohio, Lew urged Congress to raise the debt ceiling in a clean bill and avoid any question of default. “The president remains willing to negotiate over the future direction of fiscal policy, but he will not negotiate over whether the United States will pay its bills for past commitments,” Lew said.
Some Republicans are nonetheless planning on tying other measures to a debt-ceiling vote, perhaps cuts to entitlement programs and a delay in the individual mandate in the health-care law.
In response to the Treasury letter, Republicans on the Senate Finance Committee demanded that the Obama administration open up for broader fiscal negotiations and detail how much of a debt-limit increase it wanted.
“For decades, Congress and various administrations have used the debt limit as an opportunity to confront budgetary, fiscal, and other matters,” they wrote. “This debt limit increase should be viewed similarly — as an opportunity to bring lasting reforms and debt reduction to our nation.”
Lew warned in his letter that a single day’s net expenditures could be as high as $60 billion. After that mid-October deadline, money going out might overwhelm money coming in plus cash on hand. The Treasury could miss or be forced to delay paying some bills. Such an event would be unprecedented, and many financial analysts fear a possible violent market reaction with global ramifications.
Lew warned that a repeat of the debt brinkmanship of 2011 could inflict great harm on the economy and that “if the government should ultimately become unable to pay all of its bills, the results could be catastrophic.”
The government reached its $16.7 trillion debt limit in May. Since then, it has been using “extraordinary measures” such as suspending U.S. investments in federal employee trust funds, to create about $300 billion in additional borrowing room.
But on Oct. 17 the government will be left with only its cash cushion and daily receipts to pay its bills.
Economists and financial-market experts warn that the stock market could plummet and that investors would demand higher returns on Treasury notes, which could raise interest rates and harm the economy. Financial analysts are more immediately worried about the potential for wide market gyrations as investors reassessed their pricing of trillions of dollars of debt products tied to Treasury rates and sought safety in new markets or instruments.
The costs of a debt-ceiling default would almost certainly dwarf the costs associated with a government shutdown, which most experts say would be relatively small if it did not continue for an extended period.
The Bipartisan Policy Center, a Washington research group, estimated that market concern over the potential of a default in 2011 cost nearly $19 billion over 10 years, and that occurred even though the government avoided a default at the last minute.
The House recently passed legislation that would order Treasury to prioritize payments to bondholders, an action meant to soothe the markets in the event of a debt-ceiling crisis. But the Obama administration has rejected that idea and refused to negotiate over the debt limit more broadly.
“There is no way of knowing the damage any prioritization plan would have on our economy and financial markets,” Lew wrote.
Separately, the Congressional Budget Office came up Wednesday with a slightly different potential default date: between Oct. 22 and the end of the month.
The Treasury makes more than 80 million individual payments a month. After exhausting its extraordinary measures, it would miss about 30 percent of those payments until Congress raised the ceiling again.
According to the Bipartisan Policy Center, the Treasury is facing a $12 billion Social Security payment Oct. 23 and a $6 billion interest payment on the public debt Oct. 31. On Nov. 1 alone, it needs to spend $18 billion on Medicare, $25 billion on Social Security, $12 billion on military pay and veterans benefits and $3 billion on the Supplemental Security Income program.
Material from The Associated Press is included in this report.