03.05.2013 0

Report: Treasury has option to default should debt ceiling be reached

By Robert Romano

Another debt limit shocker. Apparently under current federal law, if the debt ceiling — now suspended until May 19 — is reached, the U.S. Treasury gets to decide for itself whether or not it feels like defaulting.

In other words, it would be a political decision. Such are the findings of a then-Government Accounting Office (GAO) report from 1985 when the same question came up during the Reagan Administration.

Back then, the GAO found that “The Secretary of the Treasury does have the authority to choose the order in which to pay obligations of the United States.” And, to wit, “Treasury is free to liquidate obligations in any order it finds will best serve the interests of the United States.”

Simply remarkable.

This means the new Secretary of the Treasury, Jack Lew, has complete discretion to prioritize payments to our creditors — or not — should the debt ceiling is reached.

This bombshell comes atop a recent Inspector General’s report on the Aug. 2011 debt ceiling debacle that found the Treasury itself views that it lacks the statutory authority to prioritize those payments.

“While Congress enacted these expenditures, it did not prioritize them, nor did it direct the President or the Treasury to pay some expenses and not pay others,” the report states. “As a result, Treasury officials determined that there is no fair or sensible way to pick and choose among the many bills that come due every day. Furthermore, because Congress has never provided guidance to the contrary, Treasury’s systems are designed to make each payment in the order it comes due.”

So, if the debt ceiling is reached, per the Inspector General report, we are led to believe that the current White House would effectively hold our creditors hostage and default. That is, until Congress capitulates on the issue and raises debt limit once more.

Of course, despite the Inspector General report, the Treasury does in fact have the authority to prioritize those payments, whether or not the Department believes doing so is “fair or sensible.”

Section 321 of title 31 of U.S. code states, “The Secretary of the Treasury shall prepare plans for improving and managing receipts of the United States Government and managing the public debt.”

“Managing the public debt” can only be construed to include the authority to manage and ensure that the payment principal and interest of the federal debt is made on time and in full based on whatever revenue is available to the Treasury. The trouble is that it is not mandatory that he do so.

H.R. 807, “The Full Faith and Credit Act,” offered by Rep. Tom McClintock would change all of that. It would require payments be made to our creditors out of revenue in the event the debt ceiling is reached.

There may be those who claim that under current law the Treasury lacks the authority to prioritize payments or that this authority only allows the Department to merely raise funds to pay for the debt. But this is nothing more than political sophistry to provide the Obama Administration a hammer to hold over the heads of Congress to get what he wants.

The “Full Faith and Credit Act” would take that hammer away.

Americans for Limited Government President Bill Wilson in a statement said that it was “shocking that skipping payments is even allowable under the law.”

“No president or Secretary of the Treasury should ever have the option of whether or not to service the debt,” he declared.

Wilson is urging Congress to tie the “Full Faith and Credit Act” to the upcoming vote on the continuing resolution to keep the government funded that expires on March 27. “If this reform is not passed by then, Obama will be able to run the table on Congress by again threatening default. Except this time, he could demand that the debt ceiling be indefinitely suspended or eliminated altogether, removing any legal constraint on the unbridled expansion of the debt, now nearly $16.7 trillion.”

That means come May 19, there might not be a debt ceiling, unless Congress can muster the fortitude to pass the “Full Faith and Credit Act” now.

Short of completely surrendering to Obama and letting the debt grow uncontrolled for posterity, it may be the only way to take the threat of default off the table and restore order to our nation’s fiscal house — before it’s too late.

Robert Romano is the Senior Editor of Americans for Limited Government.

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