* $135 billion shortfall in August if U.S. defaults
* Choosing winners and losers in default will be "chaos"
* $500 billion of maturing debt must be paid in August
By Tim Reid
WASHINGTON, June 28 Any attempt to prioritize
federal payments if Congress fails to raise the U.S. debt limit
and the country defaults would rapidly descend into chaos,
according to an independent study released Tuesday.
If the U.S. government cannot borrow more money to meet its
obligations past Aug. 2 -- the Treasury's deadline for raising
the federal borrowing limit -- it will be unable to pay between
40 to 45 percent of the 80 million payments it makes every
month, the report says.
After analyzing thousands of publicly available documents,
including the Treasury's daily cash outlays, the
Washington-based Bipartisan Policy Center concludes that
prioritizing payments to avoid default -- which some
conservative Republican lawmakers advocate -- is essentially
Treasury Secretary Timothy Geithner has been making the
same argument for months -- prioritizing can't be done. The
report is the first detailed independent analysis that appears
to support his assertion that a default cannot be managed, or
The policy center estimates that between Aug. 3 and Aug.
31, the Treasury will receive $172 billion in revenues but have
approximately $307 billion in obligations, leaving a monthly
deficit of $135 billion.
But if Treasury tried to meet some obligations before
others -- paying Social Security and interest on U.S. debt, for
example, rather than federal salaries -- "very popular programs
would go unfunded, whichever way you tried to prioritize
payments," said Jay Powell, a former Treasury official under
President George H.W. Bush and one of the report's authors.
PICKING WINNERS AND LOSERS
For example, in one scenario, the center used projected
August revenues to fully fund six major programs or
obligations: interest on government debt; Social Security
payments; Medicare and Medicaid; unemployment insurance
benefits, and defense vendor payments.
Those six would eat up the entire month's revenues, leaving
other obligations, including active-duty troops, the Justice
Department and the Education Department, entirely unfunded.
"So to fund any of the unfunded items, you would have to
cut from the six major programs," Powell said. "It would be
chaotic and unfair. Treasury would be picking winners and
losers. There would be public uproar."
Powell said the Treasury makes 3 million payments each day.
Trying to override government computer systems, which are
programmed to make payments as they fall due, would be a
Herculean task, he said.
The center also analyzed projected payments and revenues
for each day in August. Some days look particularly difficult.
On Aug. 15, for example, Treasury will have $41 billion in
committed spending -- including $29 billion in interest
payments -- and just $22 billion in revenues.
"Some days will be really ugly," Powell said.
The report also states that Treasury must repay almost $500
billion in maturing debt through August, and will need to
auction new debt to pay the old debt.
But if America is in default, Powell said, "the Treasury
might lose market access to sell the equivalent amount of debt
to pay the maturing debt."