The showdown over the nation's debt ceiling could force the government to consider drastic steps to manage its limited cash, including delaying trillions of dollars of payments to employees, Social Security recipients, contractors and others.
The Obama administration has said it has no backup plan to pay the government's bills if Congress refuses to raise the $16.4 trillion federal borrowing limit.
The White House said Saturday in a statement that "there are only two options to deal with the debt limit: Congress can pay its bills or it can fail to act and put the nation into default."
The Treasury could be forced to revisit proposals it considered during the 2011 borrowing-limit crisis, most of which it said were unworkable.
Those included selling assets such as gold or mortgage-backed securities to raise funds, cutting all spending by 40% or prioritizing some payments over others—for example, paying Social Security recipients before military contractors.
The proposal considered most viable was to pay the government's bills only as tax revenue became available, delaying many payments.
There are important unanswered questions about this approach, including whether it would include delaying interest payments on government debt.
The crisis was averted by Congress before Treasury officials or the president made a final decision on contingencies, according to a Treasury inspector general's report released last year and recent interviews with several people familiar with situation.
Administration officials are working on updated estimates of when the Treasury will run short of cash and could release those projections in coming days.
According to the Bipartisan Policy Center, a Washington think tank, the Treasury will hit that point between Feb. 15 and March 1 unless the debt ceiling is raised.
One thing the White House says it won't do is to pursue a somewhat fanciful idea of minting a $1 trillion platinum coin and depositing it at the Federal Reserve as a way to raise funds without borrowing.
The administration also has ruled out borrowing beyond the ceiling by invoking the 14th Amendment's clause on public debt, which some argue would permit the practice.
In a letter Friday to the president, Senate leader Harry Reid of Nevada and other Senate Democratic officials urged President Barack Obama to take "any lawful steps" to keep paying government bills in a debt-ceiling crisis.
The U.S. had been scheduled to hit the debt ceiling Dec. 31, but the Treasury began using short-term measures to prevent the government from defaulting on its obligations. Some have pushed the White House to disclose more about its contingency planning.
Sen. Orrin Hatch (R., Utah) said in a statement Friday, "Given the administration's ongoing threat that seniors and our women and men in uniform may not receive paychecks that they depend on, it's only reasonable that we know their plan B."
Treasury Department spokesman Anthony Coley said, "There is no plan B. The only way to protect American families and businesses is for Congress to do its job." In the House, the majority Republican party says it won't raise the debt limit without spending cuts of equivalent amounts.
Mr. Obama has said he won't negotiate over the matter, saying it is the responsibility of Congress to enable the government to pay bills it has incurred.
The government spends 40% more than it takes in and borrows money to cover the difference. Without an increase in the debt ceiling, the Treasury won't be able to borrow the additional money needed to pay all its bills.
Failure to make payment on even some of its obligations could wreak havoc in the economy and financial markets and possibly trigger another financial crisis and recession, analysts have warned.
When Treasury officials faced this possibility in the summer of 2011, they leaned toward recommending a strategy of delaying government payments, according to the inspector general's report, which was released in August in response to requests by Mr. Hatch.
Under this approach, the government would pay bills on a day-by-day basis only when it had enough cash on hand from tax receipts and other revenue. On days when it was short of cash, it would postpone all payments until enough cash came in to make that day's payments.
Then it would put off the next day's payments until enough cash came in to make those, and so on.
"It was the department's organizational view that the least harmful option available to the country at the time, of these very bad options, was to implement a delayed-payment regime," Eric M. Thorson, the Treasury inspector general, said in his report.
Officials appeared to have ruled out as unworkable the idea of prioritizing payments. The U.S. government makes 80 million payments a month.
Figuring out which to pay first could be a logistical nightmare. "Treasury officials determined that there is no fair or sensible way to pick and choose among the many bills that come due every day," the report said.
One area could get special consideration. The report left unanswered whether a delayed-payment regime would have included postponing interest payments on U.S. Treasury securities.
Obama administration officials declined to comment on the matter. Treasurys are a bedrock of the global financial system.
Missing an interest payment on a Treasury security could spark turmoil in financial markets, cause lasting damage to the U.S.'s credit rating, raise government borrowing costs and hurt the economy.
It is technically possible to prioritize interest payments because they are delivered over a different payment system, known as Fedwire, than the millions of other day-to-day payments the government makes to vendors, Social Security recipients and others.
Still, a system that paid bondholders their interest while delaying other payments could cause a political uproar, a concern President Obama expressed in 2011.
"Are we really going to start paying interest to Chinese who hold Treasurys and we're not going to pay folks their Social Security checks?"
Mr. Obama asked then. Mr. Thorson said Treasury officials never developed a final proposal in 2011. Its plans instead were described as "pre-decisional, working drafts of options."
As Treasury officials consider their options this year, they could put off until the last minute any contingency plan—a strategy Treasury Secretary Timothy Geithner has use during previous crises, which he calls "preserving optionality."
It keeps all options open until very late in thedecision-making process. But that could contribute to public uncertainty that may destabilize financial markets and slow growth.
Further complicating the situation, Mr. Geithner's last day at the department is Jan. 25. It is unknown what his nominated successor, White House Chief of Staff Jacob Lew, would recommend.
Moreover, Mr. Lew might not be confirmed by the Senate in time to activate a plan. That could leave the Treasury's No. 2, Neal Wolin, who likely would serve as acting secretary during any interregnum, to lead the agency's response.
wsj.com
The Obama administration has said it has no backup plan to pay the government's bills if Congress refuses to raise the $16.4 trillion federal borrowing limit.
The White House said Saturday in a statement that "there are only two options to deal with the debt limit: Congress can pay its bills or it can fail to act and put the nation into default."
The Treasury could be forced to revisit proposals it considered during the 2011 borrowing-limit crisis, most of which it said were unworkable.
Those included selling assets such as gold or mortgage-backed securities to raise funds, cutting all spending by 40% or prioritizing some payments over others—for example, paying Social Security recipients before military contractors.
The proposal considered most viable was to pay the government's bills only as tax revenue became available, delaying many payments.
There are important unanswered questions about this approach, including whether it would include delaying interest payments on government debt.
The crisis was averted by Congress before Treasury officials or the president made a final decision on contingencies, according to a Treasury inspector general's report released last year and recent interviews with several people familiar with situation.
Administration officials are working on updated estimates of when the Treasury will run short of cash and could release those projections in coming days.
According to the Bipartisan Policy Center, a Washington think tank, the Treasury will hit that point between Feb. 15 and March 1 unless the debt ceiling is raised.
One thing the White House says it won't do is to pursue a somewhat fanciful idea of minting a $1 trillion platinum coin and depositing it at the Federal Reserve as a way to raise funds without borrowing.
The administration also has ruled out borrowing beyond the ceiling by invoking the 14th Amendment's clause on public debt, which some argue would permit the practice.
In a letter Friday to the president, Senate leader Harry Reid of Nevada and other Senate Democratic officials urged President Barack Obama to take "any lawful steps" to keep paying government bills in a debt-ceiling crisis.
The U.S. had been scheduled to hit the debt ceiling Dec. 31, but the Treasury began using short-term measures to prevent the government from defaulting on its obligations. Some have pushed the White House to disclose more about its contingency planning.
Sen. Orrin Hatch (R., Utah) said in a statement Friday, "Given the administration's ongoing threat that seniors and our women and men in uniform may not receive paychecks that they depend on, it's only reasonable that we know their plan B."
Treasury Department spokesman Anthony Coley said, "There is no plan B. The only way to protect American families and businesses is for Congress to do its job." In the House, the majority Republican party says it won't raise the debt limit without spending cuts of equivalent amounts.
Mr. Obama has said he won't negotiate over the matter, saying it is the responsibility of Congress to enable the government to pay bills it has incurred.
The government spends 40% more than it takes in and borrows money to cover the difference. Without an increase in the debt ceiling, the Treasury won't be able to borrow the additional money needed to pay all its bills.
Failure to make payment on even some of its obligations could wreak havoc in the economy and financial markets and possibly trigger another financial crisis and recession, analysts have warned.
When Treasury officials faced this possibility in the summer of 2011, they leaned toward recommending a strategy of delaying government payments, according to the inspector general's report, which was released in August in response to requests by Mr. Hatch.
Under this approach, the government would pay bills on a day-by-day basis only when it had enough cash on hand from tax receipts and other revenue. On days when it was short of cash, it would postpone all payments until enough cash came in to make that day's payments.
Then it would put off the next day's payments until enough cash came in to make those, and so on.
"It was the department's organizational view that the least harmful option available to the country at the time, of these very bad options, was to implement a delayed-payment regime," Eric M. Thorson, the Treasury inspector general, said in his report.
Officials appeared to have ruled out as unworkable the idea of prioritizing payments. The U.S. government makes 80 million payments a month.
Figuring out which to pay first could be a logistical nightmare. "Treasury officials determined that there is no fair or sensible way to pick and choose among the many bills that come due every day," the report said.
One area could get special consideration. The report left unanswered whether a delayed-payment regime would have included postponing interest payments on U.S. Treasury securities.
Obama administration officials declined to comment on the matter. Treasurys are a bedrock of the global financial system.
Missing an interest payment on a Treasury security could spark turmoil in financial markets, cause lasting damage to the U.S.'s credit rating, raise government borrowing costs and hurt the economy.
It is technically possible to prioritize interest payments because they are delivered over a different payment system, known as Fedwire, than the millions of other day-to-day payments the government makes to vendors, Social Security recipients and others.
Still, a system that paid bondholders their interest while delaying other payments could cause a political uproar, a concern President Obama expressed in 2011.
"Are we really going to start paying interest to Chinese who hold Treasurys and we're not going to pay folks their Social Security checks?"
Mr. Obama asked then. Mr. Thorson said Treasury officials never developed a final proposal in 2011. Its plans instead were described as "pre-decisional, working drafts of options."
As Treasury officials consider their options this year, they could put off until the last minute any contingency plan—a strategy Treasury Secretary Timothy Geithner has use during previous crises, which he calls "preserving optionality."
It keeps all options open until very late in thedecision-making process. But that could contribute to public uncertainty that may destabilize financial markets and slow growth.
Further complicating the situation, Mr. Geithner's last day at the department is Jan. 25. It is unknown what his nominated successor, White House Chief of Staff Jacob Lew, would recommend.
Moreover, Mr. Lew might not be confirmed by the Senate in time to activate a plan. That could leave the Treasury's No. 2, Neal Wolin, who likely would serve as acting secretary during any interregnum, to lead the agency's response.
wsj.com
No comments:
Post a Comment