The other government crisis you haven’t heard about

Tom House Contributor
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Treasury Secretary Jack Lew drew an official deadline of Oct. 17 Wednesday to raise the nation’s debt ceiling, after which he said the Treasury will not have enough cash to pay the country’s bills in mid-October.

Lew sent another letter to congressional leaders following a letter he wrote in late-August warning of a possible default in mid-October.

After Oct. 17, the Treasury would have only approximately $30 billion to meet all of its commitments instead of the $50 billion he estimated a few weeks ago. He also wrote that he now expects the so-called extraordinary measures that the Treasury Department has been taking since the spring will be exhausted even earlier than he originally thought, thinning out no later than Oct.17.

“This amount would be far short of net expenditures on certain days, which can be as high as $60 billion,” Lew wrote in the letter.

“If we have insufficient cash on hand, it would be impossible for the United States of America to meet all of its obligations for the first time in our history,” he said.

Lew also noted, as in the past, that his estimates are subject to “inherent variability” based on a number of factors that are difficult to predict — such as the “impact of sequestration and the challenges of forecasting the timing and amount of daily government transactions.”

Analysts have already begun to warn about the possibility of a debt-ceiling crisis.

Chris Krueger, a D.C.-based analyst for Guggenheim Partners LLC, wrote in a market commentary last month that there is a 40 percent chance of “technical default scenarios” as a result of the looming fight over raising the debt ceiling.

“The path forward on the debt ceiling remains a total mystery and our 60% probability that the U.S. will not enter into technical default scenarios is based on nothing more than blind faith,” Krueger wrote of the shutdown fight.

If Congress doesn’t raise the borrowing limit by mid-October, Treasury will only be able to pay the bills with the money it has on hand, plus any revenue that comes in.

House Republicans have proposed the Treasury could be allowed to prioritize which bills it pays with the funds it already possesses — the top two being the payment of interest on the debt to bondholders and making payments to Social Security recipients. However, the Treasury is skeptical.

“Any plan to prioritize some payments over others is simply default by another name,” Lew wrote. “It would represent an irresponsible retreat from a core American value: We are a nation that honors all of its commitments.”

If Congress fails to raise the debt ceiling in time, Treasury will have to make the difficult decision of choosing who gets paid (and who doesn’t). Potentially, it could pay some bills in full and on time and delay others or even delay all payments until there is sufficient revenue to pay them in full.

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