It would be ‘chaos’ to try to prioritize payments: U.S. Treasury Secretary
(Reuters) – The Obama administration said on Thursday that a looming U.S. default would hit everyone from Social Security pensioners to bondholders and urged Congress to raise the cap on government borrowing to avoid a crisis.
Appearing before lawmakers, U.S. Treasury Secretary Jack Lew tried to shoot down the notion that Washington could prioritize between its many payment obligations.
He warned lawmakers that later this month the government might miss payments on pensions and health care for the elderly. It also must make payments to creditors.
“I don’t believe there is a way to pick and choose on a broad basis,” Lew told a Senate hearing.
While missing non-debt payments could over time push the economy into recession, a missed debt payment could trigger an even more profound financial crisis.
Washington takes in about 70 cents in taxes for every dollar it spends, so it must borrow to pay its bills. If Congress fails to raise a $16.7 trillion cap on government borrowing soon, the Treasury will not have enough money to cover the nation’s obligations.
While there were signs that a debt ceiling deal could be closer, failure to raise the current limit would force the government to stop adding to the national debt by October 17.
Lew said that even if President Obama authorized the Treasury to try to prioritize payments, there was no way the payment system would operate smoothly. “It would be chaos.”
Many analysts are convinced the administration would at least try to keep investors whole, and Republican lawmakers have proposed plans that would force the administration to do so.
“The only appropriate thing to do is plan for contingencies,” said Pat Toomey, a Republican senator from Pennsylvania.
Toomey pressed Lew to divulge any plans the administration might have for insuring that creditors will get paid, but Lew said this could be impossible.