Friday, October 16, 2015

Treasury: "There is Only One Solution to the Debt Limit"

by Bill McBride on 10/16/2015 03:30:00 PM

From the U.S. Treasury: There is Only One Solution to the Debt Limit

Some commentators have suggested that the President could invoke the Fourteenth Amendment of the Constitution as a justification for issuing debt in excess of the debt limit. Others have suggested that Treasury could mint and issue a large-denomination platinum coin to obtain cash without exceeding the debt limit. But as we’ve said before, the Fourteenth Amendment does not give the President the power to ignore the debt ceiling. And neither the Treasury nor the Federal Reserve believes that the law can or should be used to produce platinum coins for the purpose of avoiding an increase in the debt limit.

As the Chair of the Council of the Inspectors General on Financial Oversight (CIGFO) explained in 2012, Treasury found no option that could reasonably protect the full faith and credit of the United States and the American people from very serious harm. Additionally, CIGFO noted that Treasury viewed the option of delaying payments as the least harmful among these options. But this option would still be default. Fortunately, because Congress ultimately took action, no final decision was needed.

With some in Congress again suggesting that we prioritize principal and interest while missing payments on other obligations, it’s worth considering again why this is such an unacceptable outcome. It is simply default by another name.
...
Principal and interest on the debt are only part of our obligations. Prioritizing principal and interest would mean paying some of our creditors – many of whom are foreign institutions – while defaulting on across-the-board payments everywhere else. That would include payments to members of the military, veterans, and senior citizens. It would include payments on infrastructure projects. In this scenario that America defaults on its obligations, there would be no way to prevent significant disruptions and hardship for millions of Americans. Default would undermine confidence in the creditworthiness of the United States.
...
For 226 years, we have been a country that pays all our bills. We can’t break that trust with our creditors and investors and put the full faith and credit of the United States in question. And we can’t break that trust with our citizens.
emphasis added
It is the responsibility of Congress - and Congress alone - to pay the bills. Default is not an option.  They have less than 3 weeks to act ...