Lawmakers from Capitol Hill to the Oval Office are operating on the debt limit under a self-imposed and what some call a “soft” deadline.
From the beginning, some were arguing from the wings that the debt ceiling should stay just exactly where it is and talks of economic disaster were overblown. Now that August 2 is a little over two weeks away, there is a growing chorus that says Treasury Secretary Tim Geithner has tools he can use to avoid technical default.
“Can the Administration continue to pay the full legal obligations after August 2? The answer is ‘yes,’” said Economist Jason Fichtner of the Mercatus Center. “The question is for how long.”
“There is no deadline,” a former Bush Administration official told TheDC, “just an increasing level of legal ambiguity of the steps you can take.” (S&P warns it may downgrade US credit rating)
Fichtner argued in an interview with The Daily Caller, that there are measures Geithner can take come August 3, if Congress has not authorized an increase in the debt limit. For starters, payments can be prioritized to avoid a technical default. The federal government could also liquidate assets, including selling off the $142.5 billion in equity investments it still has in TARP.
And when it comes to Social Security, the government can keep making payments. The $2.6 trillion sitting in the Social Security trust fund is intergovernmental debt – bonds that were issued to the fund with the full faith and credit of the U.S. when the federal government borrowed from the program.
Ficthner argues that it is possible to convert that intergovernmental debt into public debt that the government can sell for cash, and thus be able to continue making Social Security payments.
The bottom line, said Fitchner, is that the Administration can continue paying its bills after August 2. “Is it responsible? No,” he said. “But can you do it? Yes.”
But Fitchner maintains that maneuvering payments only buys time on an inevitable reality: the debt limit will still have to be raised eventually.
The former Bush official agreed, telling TheDC “At some point they’re going to have to raise the debt ceiling. But again, there’s no deadline.”
At either end of Pennsylvania Ave, however, President Obama and leadership on the Hill repeatedly insist calamity will strike if the debt limit is not raised by August 2.
“This idea that not paying the debt doesn’t matter is patently false, dangerous and callous,” said Democrat Sen. Chuck Schumer of New York on Thursday.
On Thursday, Treasury Secretary Tim Geithner said on Capitol Hill “We don’t have much time. It’s time to move….The eyes of the country are on us and the eyes of the world are on us.”
At another point, Geithner took it a step further by saying, “We have looked at all available options, and we have no way to give Congress more time to solve its problem. We are running out of time.”
And President Obama, in recent weeks, has called August 2 a “hard deadline.”
“This is not an abstraction” the President said in an interview with CNN. “If the United States government for the first time cannot pay its bills, if it defaults, then the consequences for the U.S. economy will be significant and unpredictable.And that is not a good thing.”
The Bush Administration official, who dealt with the debt limit issue on more than one occasion told TheDC that every time, the Treasury Secretary declared a debt suspension period. In 2003, for example then Treasury Secretary John Snow declared a debt suspension period of three months, then followed that up with an extension of five months to avoid default.
Geithner’s debt suspension period expires on August 2, meaning at that point he has the option to extend the suspension. Each month of extension creates approximately $6 trillion in room under the debt ceiling.
If, at the end of the day, lawmakers are confronted with converting to a cash-flow government, “I think they’re going to have to admit they have additional tools,” said the official.
“The problem with relying on rhetoric is it forces your hand and puts you in a corner,” said Fitchner. So what will Administration officials choose to do when August 2 approaches and lawmakers are still in a stalemate? Fitchner fears politicians will have backed themselves into a rhetorical corner defaulting on at least some payments.