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Treasury Secretly Weighs Default Options

From the fear mongers at Reuters:

Exclusive: Treasury secretly weighs options to avert default

By Ross Colvin and Jackie Frank | Reuters
July 7, 2011

WASHINGTON (Reuters) – A small team of Treasury officials is discussing options to stave off default if Congress fails to raise the country’s borrowing limit by an August 2 deadline, sources familiar with the matter said on Wednesday.

Senior officials, including Treasury Secretary Timothy Geithner, have repeatedly said there are no contingency plans if lawmakers do not give the U.S. government the authority to borrow more money.

But behind the scenes, top Treasury officials have been exploring ways to prevent a financial meltdown that would be triggered if the government were unable to pay its bills on time, sources told Reuters.

But we are certainly shocked to learn that we are being told one thing by the most transparent administration in history, while they are doing something else in secret. (Just kidding.)

Treasury has studied the following issues:

Whether the administration can delay payments to try to manage cash flows after August 2

If the U.S. Constitution allows President Barack Obama to ignore Congress and the government to continue to issue debt

Of course it doesn’t. Congress has the power of the purse.

Whether a 1985 finding by a government watchdog gives the government legal authority to prioritize payments

Of course it does. Especially since this is the same as the first question. Besides, the government prioritizes payments all the time.

The contingency discussions, which have remained a closely guarded secret throughout weeks of negotiations with Congress over the debt ceiling, are being led by Mary Miller, Assistant Secretary for Financial Markets, who is effectively custodian of the country’s public debt.

So these contingency plans have been kept secret from our elected representatives in Congress, who are being told that there are no other options but ‘default.’ — That is quite interesting. And typical of ‘the most transparent administration in history.’

Miller’s team has debated whether Obama could ignore Congress and order continued borrowing — by relying on the 14th Amendment of the U.S. Constitution — if it fails to raise the borrowing cap.

The fourth section of the 14th Amendment states the United States’ public debt "shall not be questioned." Some argue the clause means the government cannot renege on its debts.

Obama dismissed talk of invoking the amendment on Wednesday. "I don’t think we should even get to the constitutional issue," he said. "Congress has a responsibility to make sure we pay our bills. We’ve always paid them in the past." …

This completely and intentionally confuses the issue. Ignoring the law which mandates a debt limit is a completely different matter from not paying back the money the US owes.

There has been growing speculation in Washington in recent days that the administration could use the amendment to ignore the congressionally imposed limit on the amount of money the United States can borrow…

"Growing speculation" = a trial balloon floated by the administration via its usual mouthpieces in the media.

Miller’s team has discussed the Government Accountability Office’s 1985 assessment that Treasury has the authority to prioritize payments in the event of a default — an option Treasury officials have been wary of

Real life businesses and households do this all the time.

The administration’s nightmare scenario is that investors panic at the prospect of a default, triggering a crisis that eclipses the 2008 financial meltdown. That could plunge the U.S. economy into another recession, something that could doom Obama’s re-election prospects in 2012.

What blatant fear mongering. And it is clearly false. There is no sign of any panic in the financial markets. In fact, money is flowing to the US from Europe, where there is a real fear of economic collapse.

Some conservative Republicans have argued the Treasury can prioritize payments and manage a default. The administration wants to keep lawmakers focused on the August 2 deadline, and even a hint of a "Plan B" could lessen the urgency to strike a deal by then.

"As we have said repeatedly over the past six months, there is no alternative to raising the debt limit," Treasury spokeswoman Colleen Murray said when asked to comment on the Treasury discussions.

"The only way to prevent a default crisis and protect America’s credit-worthiness is to enact a timely debt limit increase, which we remain confident Congress will do." …

In other words, the administration has lied to Congress to try stampede them into a deal by telling them there are no other options besides ‘default,’ when there are. And when there is no reason whatsoever to default.

Moreover, the best thing the administration can do to "protect America’s credit-worthiness" is to cut spending. Even Greece and Portugal have figured that out.

In August, the Treasury will take in roughly $172 billion, but is obligated to make $306 billion in payments — meaning it cannot pay about 45 percent of its bills without borrowing more money, according to the Bipartisan Policy Center, a Washington think tank

This is also intentionally misleading. The US would only default if we don’t ‘service the debt.’ That is, pay the interest on the money already borrowed. And that is only about 6% of the debt.

If Treasury were to decide to delay some payments, one option could be to postpone a disbursement of more than $49 billion to Social Security recipients that is due on August 3.

It would be a politically explosive step but one that could allow the government to temporarily pay bondholders to try to avoid foreign investors dumping U.S. Treasuries and the dollar.

As always, the administration and the lickspittle minions in the news media roll out granny in her wheelchair.

The administration has warned that any missed payments, including those to retirees, veterans and contractors, would be default by another name, and the Treasury team still has concerns that any contingency plan would prove unworkable…

It wouldn’t be default by any name. But it is fear mongering and demagoguery at their finest.

This article was posted by Steve on Thursday, July 7th, 2011. Comments are currently closed.

5 Responses to “Treasury Secretly Weighs Default Options”

  1. P. Aaron says:

    Obama’s plan: treat everyday administration of typical gov’t duties as a ‘crisis’.

  2. BigOil says:

    It is long overdue to call the bluff of the ‘never let a good crisis go to waste’ crowd.

    Do not increase the debt ceiling – let this serve as a defacto government shutdown. Pay to service the debt, Social Security, Medicare & Medicaide, and fund the active duty military and border agents. Basically fund what is Constitutionally mandated and what people have paid into.

    Shut the rest down and see if anyone cares.

  3. untrainable says:

    …there are no contingency plans if lawmakers do not give the U.S. government the authority to borrow more money.
    Isn’t this statement a tacit admission of incompetence? For the boys at treasury to essentially brag that they “ain’t got no idears uther then borrowin’ more money” should, in itself make the point that we need different people running our treasury. And the fact that they are keeping secret any notion that they may have a contingency plan that would stave off default shows without question that this administration and all it’s minions have the common strategy of using the threat of default as the boogy-man to frighten us into doing whatever they want.

    Is it me or does that seem backwards? Usually, in government, they tell you they have a plan when in reality they have nothing. Here, they’re telling us they have nothing but secretly they’re planning for a loss on the debt ceiling debate. Funny huh?

  4. tranquil.night says:

    Bring it on. We’ll see how trying to blame it on us works out for you. The only federal institution the people would rally to would be the military, which we know you’re already trying to sabotage, pussify, and cut down at the knees while loading them down in 6 kinetic military operations.

  5. Liberals Demise says:

    “…..if they bring a knife we’ll bring a gun.”
    Candidate Obamao 2008

    Uh, check your clip there bub. You’re all out of ammo and we still have a knife.
    The GOP had best not Fold, spindle or mutilate on this. Our Nation depends
    on it.

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