If debt ceiling reached, what bills won’t be paid?

President Barack Obama (AP Photo/Pablo Martinez Monsivais, File)

President Barack Obama
(AP Photo/Pablo Martinez Monsivais, File)

In the summer of 2011, when a debt crisis like the current one loomed, President Barack Obama warned Republicans that older Americans might not get their Social Security checks unless there was a deal to raise the nation’s borrowing limit.

After weeks of brinkmanship, Republicans consented and Obama agreed to a deficit-reduction plan the GOP wanted. Crisis averted, for a time.

Now that there’s a fresh showdown, the possibility of Social Security cuts —and more — is back on the table.

The government could run out of cash to pay all its bills in full as early as Feb. 15, according to one authoritative estimate, and congressional Republicans want significant spending cuts in exchange for raising the borrowing limit. Obama, forced to negotiate an increase in 2011, has pledged not to negotiate again.

Without an agreement, every option facing his administration would be unprecedented.

It would require a degree of financial creativity that could test the law, perhaps even the Constitution.

It could shortchange Social Security recipients and other people, including veterans and the poor, who rely on government programs.

It could force the Treasury to contemplate selling government assets, a step considered but rejected in 2011. In short, the Treasury would have to create its own form of triage, creating a priority list of its most crucial obligations, from interest payments to debtors to benefits to vulnerable Americans.

“It may be that somewhere down the line someone will challenge what the administration did in that moment, but in the moment, who’s going to stop them?” asked Douglas Holtz-Eakin, a former director of the Congressional Budget Office. “I pray we never have to find out how imaginative they are.”

In such a debt crisis, the president would have to decide what laws he wants to break. Does he breach the borrowing limit without a congressional OK? Does he ignore spending commitments required by law?

In a letter to Obama on Friday, Senate Democratic leaders urged him to consider taking any “lawful steps that ensure that America does not break its promises and trigger a global economic crisis — without congressional approval, if necessary.”

The White House has resisted that path. It has rejected recommendations that it invoke a provision in the 14th Amendment to the Constitution that states that “the validity of the public debt of the United States … shall not be questioned.”

“There are only two options to deal with the debt limit: Congress can pay its bills or they can fail to act and put the nation into default,” White House press secretary Jay Carney said. “Congress needs to do its job.”

So what’s left if Congress does not act in time?

Technically, the government hit the debt ceiling at the end of December. Since then, Treasury Secretary Timothy Geithner has halted full payments into the retirement and disability fund for government workers and to the health benefits fund of Postal Service retirees.

The Treasury can stop payments to a special fund that purchases or sells foreign currencies to stabilize world financial markets.

Past administrations have taken such steps to buy time awaiting a debt ceiling increase. That happened under Presidents Bill Clinton and President George W. Bush. The government restored those funds after Congress raised the debt ceiling.

Those measures and others could keep the government solvent, perhaps as far as early March, according to an analysis by the Bipartisan Policy Center.

There are other extreme possibilities as well.

The federal government could sell some of its assets, from its gold stockpile to its student loan portfolio.

“All these things are in principle marketable, and in a crisis you’d get huge discounts on them,” said Holtz-Eakin, now head of the American Action Forum, a conservative public policy institute. “They wouldn’t be good ordinary business, but you would be in extraordinary times.”

According to a treasury inspector general report last year, department officials in 2011 considered and rejected the idea, concluding that gold sales would destabilize the international financial system, that selling off the student loan portfolio was not feasible and that such “fire sales” would buy only limited time.

An idea pushed by some liberals would take advantage of a legal loophole meant for coin collectors and have the Treasury mint platinum coins that could be deposited at the Federal Reserve and used to pay the nation’s bills. But the Treasury issued a statement Saturday putting the idea to rest, saying neither the department nor the Federal Reserve believes the law “can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit.”

Once all efforts are exhausted, then the government would be in uncharted territory.

At that point, the government would continue to get tax revenue, but hardly enough to keep up with the bills. According to the Bipartisan Policy Center, the federal government between Feb. 15 and March 15 will get $277 billion in revenue and face $452 billion in obligations.

The Treasury would have to decide whether to pay some obligations and not others or to simply pay for one day’s bills as it tax revenue rolls in, exponentially delaying payments the longer the debt ceiling is not raised. Under virtually every scenario contemplated, payment of interest on the debt takes precedence to put off a calamitous default.

“I happen to think the triage would be chosen to create the maximum amount of political pressure to break the impasse right away, which would be withholding Social Security checks,” said Philip Wallach, a fellow at the Brookings Institution.

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Follow Jim Kuhnhenn on Twitter: http://twitter.com/jkuhnhenn

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Copyright © 2013 The Associated Press. All right reserved.

Copyright © 2013 Capitol Hill Blue

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4 Responses to "If debt ceiling reached, what bills won’t be paid?"

  1. Keith  January 14, 2013 at 8:02 am

    “It (i.e.The Obama Administration) has rejected recommendations that it invoke a provision in the 14th Amendment to the Constitution that states that “the validity of the public debt of the United States … shall not be questioned.”

    No doubt this is a political ploy on the part of President Obama to hold the nation’s fiscal creditably hostage in order to get his way for yet more taxes and spending.

    On the other hand, to say that “the validity of the public debt of the United States shall not be questioned” begs the obvious question:

    “By whom”?

    Clearly, the REST of the world is not bound by the US Constitution and, therefore have every right to “question” the USA’s ability to pay its bills.

    And that credibility is sinking ever lower as the rest of the world looks on in amazement at the circus that our government funding process in the United States has now become.

  2. Willie Buck Merle  January 14, 2013 at 1:18 pm

    “No doubt this is a political ploy on the part of President Obama to hold the nation’s fiscal creditably hostage in order to get his way for yet more taxes and spending.”

    Jeebus. You know who else was misunderstood… HITLER!

  3. Pondering_It_All  January 14, 2013 at 5:12 pm

    Maybe the best plan is to suspend all government support payments to businesses, and defer payment of Social Security check amounts over say $700/month. Poor retired folks and the disabled who are very dependent on their Social Security checks would still be getting some money (maybe even full payment), but businesses and richer retired folks would be raising a ruckus for their Representatives in the House to act immediately.

    There are a lot of retired people who vote a straight Republican ticket, though Republican ideas are not in their long-term financial interest. When long-term changes to short-term, they may just change their minds about that.

    • Jon  January 14, 2013 at 7:57 pm

      There is an interesting bug in Social Security payments, in that those who get the most are those who need it the least.

      If they’ve had high-paying jobs all their lives, they’ve paid in huge amounts and expect back huge amounts, but they’re also the class most likely to have significant other assets to provide for their own retirement.

      Those who’ve slaved away at low-wage jobs all their lives have never had the opportunity to acquire assets, and are still, even in retirement, living from check to check…

      J.

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