Prioritizing which U.S. bills to pay would be 'chaos': Lew

WASHINGTON Thu Oct 10, 2013 12:30pm EDT

1 of 6. U.S. Treasury Secretary Jack Lew testifies before the Senate Finance Committee on the U.S. government debt limit in Washington October 10, 2013.

Credit: Reuters/Gary Cameron

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WASHINGTON (Reuters) - The Obama administration said on Thursday that a looming U.S. default would hit everyone from Social Security pensioners to bondholders and urged Congress to raise the cap on government borrowing to avoid a crisis.

Appearing before lawmakers, U.S. Treasury Secretary Jack Lew tried to shoot down the notion that Washington could prioritize between its many payment obligations.

He warned lawmakers that later this month the government might miss payments on pensions and health care for the elderly. It also must make payments to creditors.

"I don't believe there is a way to pick and choose on a broad basis," Lew told a Senate hearing.

While missing non-debt payments could over time push the economy into recession, a missed debt payment could trigger an even more profound financial crisis.

Washington takes in about 70 cents in taxes for every dollar it spends, so it must borrow to pay its bills. If Congress fails to raise a $16.7 trillion cap on government borrowing soon, the Treasury will not have enough money to cover the nation's obligations.

While there were signs that a debt ceiling deal could be closer, failure to raise the current limit would force the government to stop adding to the national debt by October 17.

Lew said that even if President Obama authorized the Treasury to try to prioritize payments, there was no way the payment system would operate smoothly. "It would be chaos."

Many analysts are convinced the administration would at least try to keep investors whole, and Republican lawmakers have proposed plans that would force the administration to do so.

"The only appropriate thing to do is plan for contingencies," said Pat Toomey, a Republican senator from Pennsylvania.

Toomey pressed Lew to divulge any plans the administration might have for insuring that creditors will get paid, but Lew said this could be impossible.

"Anyone who thinks that it can be done just doesn't know the architecture of our multiple payment systems," Lew said. "They were designed properly to pay our bills; they were not designed to not pay our bills."

Lew also said there were complicated legal issues regarding prioritization of interest and principal on debt.

Gridlock in Washington was already hurting the U.S. economy, he said.

The country's political dysfunction has already led the government to partially shut down, which is sucking money out of the economy by delaying payments to many federal workers.

"We now face a manufactured political crisis that is beginning to deliver an unnecessary blow to our economy," Lew said, adding that uncertainty over the possibility of default was already weighing on financial markets.

(Reporting by Jason Lange; Additional reporting by Susan Heavey; Editing by James Dalgleish and Leslie Gevirtz)

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Comments (19)
COindependent wrote:
Default is not in the cards. There is plenty of money inside the federal government to cover any interest costs and bills that come due. All they have to do is what every business does and move the funding from unnecessary and redundant functions into more critical areas. It’s what every CFO in the private sector is charged to do–it’s they job. The issue is that the Congress and the POTUS refuse to make those hard choices.

This false crisis is merely a political charade to expand government. Even with the proposed “cuts”, annual spending increases each year. Only in Washington is a reduction in the growth of spending considered a “cut”.

With the percentage of government employees paid well in excess of comparable jobs in the private sector, and with a robust benefits package, there are plenty of dollars to go around. With one government employee for every fifteen (15 citizens) there is a lot of fluff in government. There are few businesses that could operate at the same employee to customer ratio at the same fully-burdened cost per employee. It’s unsustainable.

The EPA consumes $500,000 per employee each year. There are very few businesses that generate this level of revenue per employee. And the DOJ has 114,000 employees. Doing just what?

Time to slim it down to the core services and eliminate the overhead and spending. During the recession the government has added employees, while the private sector was forced to restructure. In the meantime, five of the ten wealthiest counties in the country are within commuting distance of DC.

Yet the POTUS and Jack Lew will beat the drum that they are out of money. Much like a drug addict telling you he needs more drugs to get past his addiction.

Congress, both Democrats and Republicans, created this mess, Congress needs to clean it up.

(Time for all the bleeding hearts to chime in how it’s impossible to do this.)

Oct 10, 2013 9:15am EDT  --  Report as abuse
UPYERS wrote:
Some lawmakers/lawbreakers need to submit to retroactive birth control!

Oct 10, 2013 9:26am EDT  --  Report as abuse
LoveJoyOne wrote:
COindependent,

Your argument is not just wrong and reckless but extremely dangerous.

I implore other readers to not fall for COindependent’s seemingly logical but factually flawed line of reasoning.

As Lew said, they’ve already been using extraordinary measures to avoid default since May 2013. This is it.

A default would surely bring the worst thing the world’s economy has seen since October 1929. Perhaps even worse.

Oct 10, 2013 10:01am EDT  --  Report as abuse
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