Treasury Secretary Jack Lew informed Congress late last month that, unless the debt ceiling is raised, by mid-October the nation will run out of money to pay all of its bills on time. The good folks at the Bipartisan Policy Center (BPC) released this morning an analysis of the situation that puts the “X date” sometime between Oct. 18 and Nov. 5. If the financial house of the United States is not in order by then, the uncertainty could wreak havoc on this nation’s and the world’s economy.
The BPC says there are two potential courses of action for Treasury if it exhausts the extraordinary measures it has used to stay below the $16.7 trillion debt ceiling since May. One scenario calls on the United States to prioritize payments. If that happens, the BPC estimates that Treasury would come up $106 billion short in bills coming due between Oct. 18 and Nov. 5.
The political hell that would be unleashed on Washington, as the administration picked winners and losers (paying defense contractors vs. funding the Justice Department), in this scenario would be intense. As would the legal ramifications of the government choosing to pay one bill collector over another. Then there’s the whole issue of the United States not paying its bills on time for the first time in history and the impact that would have on markets around the world. The full faith and credit of the United States would be in tatters.
The second scenario is more tenable from the BPC’s perspective. Still, it’s a nightmare since Treasury would delay paying a day’s bills until it had all the money in hand. What starts out as a mere one business-day delay in paying out Medicaid and Medicare benefits balloons to two weeks when military pay and Social Security and Veterans benefits are due at the beginning of November.
“Congress should act as soon as possible to meet its responsibility to the nation and to remove the threat of default,” Lew wrote to congressional leaders. “Under any circumstance — in light of its schedule, the inherent variability of cash flows, and the dire circumstances of miscalculation — Congress must act before the middle of October.” Lew also reminded the lawmakers that “[e]xtending borrowing authority does not increase government spending, it simply allows the Treasury to pay for expenditures Congress has previously approved.”
In other words, if the debt ceiling isn’t raised, the United States will be a deadbeat nation. And that simply must not come to pass.
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