10.04.2013 1

As shutdown wears on, debt ceiling looms, Obama threatens default

By Robert Romano

dollarbombAs the partial government shutdown wears on in Washington, D.C., another potential standoff is right around the corner — this time it’s the $16.699 trillion debt ceiling.

Treasury officials claim that come Oct. 17, the government will be unable to make payments on time and in full on the national debt, triggering the first default in U.S. history.

Of course, there’s enough revenue to pay interest owed on the debt, and Treasury can refinance existing debt up to the limit—there just would not be enough money to pay for everything else.

The White House’s argument is that the government legally has no authority to prioritize payments on the debt, according to a recent Inspector General’s report on the Aug. 2011 debt ceiling debacle.

“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.”

There is only one problem. The Treasury does have the authority to prioritize payments, a then-Government Accounting Office (GAO) report from 1985 found 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.”

In addition, Section 321 of title 31 of the 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. Yet, the trouble is that it is not mandatory that he do so.

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

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.

It is in this context that congressional Republicans have struggled over the question of whether to attach demands to defund and delay Obamacare to the continuing resolution that funds the discretionary portion of the government, or the debt ceiling.

There are two reasons the continuing resolution was and is the least bad of two options.

The first is that Harry Reid stripped out language from the continuing resolution that would have prioritized debt payments in the event the debt ceiling is reached. Such language, called the “Full Faith and Credit Act,” would have removed the threat of default from the debt ceiling debate.

With the debt ceiling coming due on Oct. 17, Obama therefore remains able to wield his default threat over the coming weeks. Meaning, achieving anything using the debt ceiling increase as a vehicle is unlikely, since Republicans will be unwilling to reach the deadline and risk Obama defaulting on the debt. If Obama is threatening to default, even if he need not, perhaps we should listen to him.

Another reason to use the continuing resolution rather than the debt ceiling is simply because so many House Republicans have staked out a position where they cannot support such a resolution if it funds Obamacare.

Forcing a vote on a continuing resolution that in fact funds Obamacare would tear the House Republican Conference to pieces, and require Boehner to seek out Democrat votes to get it across the finish line. It would be civil war.

In the meantime, Republicans will have achieved nothing with the debt ceiling and never even got to the negotiating table. No defund. No delay. No concessions. Nothing.

Obama and Reid will have gotten everything they want and the House will have been relegated to nothing more than a rubber stamp for their demands.

To avoid such an outcome, Republicans should not switch strategies midstream. If they believe that Obama will default, it’s an unacceptable risk to use the debt ceiling to achieve concessions on Obamacare. Stick with the continuing resolution. A shutdown is manageable. What Obama might do if the debt ceiling is reached, on the other hand, is beyond Republicans’ control.

Robert Romano is the senior editor of Americans for Limited Government. 

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