Treasury Secretary Jack Lew urges Congress to pass ‘clean’ debt limit increase
Treasury Secretary Jack Lew urged Congress to approve a “clean” debt limit increase as soon as possible, stressing that the federal government will have to use “extraordinary measures” to avoid default after its borrowing authority expires on Friday.
“In just a matter of days, the temporary suspension of the debt limit will end, and the Treasury Department will have to start using extraordinary measures so the government can continue to meet its obligations,” said Lew at the Bipartisan Policy Center. “We now forecast we’re likely to exhaust these measures by the end of the month.”
The extraordinary measures won’t provide much of a cushion this time partly due to tax refunds, which will “deplete” the Treasury’s cash balance “faster than at other times of the year,” according to Lew.
This means that Congress has only short three-week window to raise the debt ceiling before the Treasury runs out of cash to pay all the government’s bills on time, effectively defaulting on its debt obligations.
“After we exhaust this borrowing capacity, we will be left with only the cash we have on hand and any incoming revenues to meet our country’s commitments,” said Lew. “Without borrowing authority, at some point very soon, it would not be possible to meet all of the obligations of the federal government.”
Not only would this mean delays in payments of Social Security benefits, Medicare reimbursement to health care providers, veterans’ benefits, and military salaries, a government default would send the financial markets into a tailspin and harm the U.S. economy.
“Given these realities, it’s imperative that Congress move right away to increase our borrowing authority. It would be a mistake to wait until the 11th hour to get this done,” said Lew. “The fact is simply delaying action on the debt limit can cause harm to our economy, rattle financial markets, and hurt taxpayers.”
The 2011 debt ceiling showdown resulted in the unprecedented downgrade of U.S. credit rating, and the Bipartisan Policy Center estimated that the brinksmanship may end up costing taxpayers $18.9 billion over 10 years. The threat of a government default last October resulted in the tripling of short-term Treasury yields, thereby raising the government’s borrowing costs.
While Republicans have insisted on spending cuts in exchange for any increase to the debt limit, Lew pointed out that raising the debt ceiling would simply allow the Treasury to borrow cash to pay the bills that Congress have already incurred. He maintained that it is inappropriate for Congress to use the debt limit – and the threat of default – as political leverage to cut spending.
“Raising the debt limit has nothing to do with new spending. It’s about fulfilling spending obligations that Congress has already made and paying bills that have already been incurred. Refusing to raise the debt ceiling will not make these obligations or bills suddenly vanish,” Lew explained.
Lew reiterated that President Barack Obama will not negotiate the debt limit.
“The President has made it clear time and again that neither he nor any other President should have to pay a ransom so the United States can pay its bills. Presidents from both political parties have always stood firm on the importance of protecting the full faith and credit of the United States. We should never put this precious asset in jeopardy,” said Lew. “I think the President’s position on this has been a very principled one. He has many times said if you flipped the parties around and have a Democratic Congress and a Republican President, he would just as strongly believe that it’s an obligation to pay our bills.”
- WhatTheFolly.com: Transcript: Treasury Secretary Jack Lew’s remarks on the debt ceiling – Feb. 3, 2014
- WhatTheFolly.com: Transcript: Q&A w/ Treasury Secretary Jack Lew on the debt ceiling & economy – Feb. 3, 2014
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- Bipartisan Policy Center: Extraordinary Measures, Simplified
- Treasury.gov: At Bipartisan Policy Center, Secretary Lew Urges Quick Action on Debt Limit
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