Hitting the debt limit: What bills would be paid?
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.
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.”
“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.