Treasury Officials Weighing Options To Avoid Default

By Richard Cowan, Rachelle Younglai, Tim Reid and Caren Bohan

WASHINGTON (Reuters) - A small team of U.S. Treasury officials is discussing options to stave off default if Congress fails to raise the debt limit by the Aug. 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 was unable to pay its bills on time, sources told Reuters.

Treasury has studied the following issues:

- Whether the administration can delay payments to try and manage cash flows after Aug. 2;

- If the Constitution allows Obama to ignore Congress and the government to continue to issue debt; and

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

Mary Miller, assistant secretary for Financial Markets, and Richard Gregg, Treasury's fiscal assistant secretary, are leading the specialized Treasury team.

They have discussed, but the White House has dismissed, the option that Treasury could rely on the 14th Amendment of the U.S. Constitution to go ahead with bill payments even in the absence of a debt limit increase.

There has been growing speculation in Washington in recent days that Treasury could use the amendment -- which some argue says the government cannot renege on its debts -- to ignore the congressionally imposed limit on the amount of money the United States can borrow.

But White House spokeswoman Amy Brundage said, ``Despite suggestions to the contrary, the 14th Amendment is not a failsafe that would allow the government to avoid defaulting on its obligations.''

The Treasury team has also talked about the Government Accountability Office's 1985 assessment that Treasury has the authority to prioritize payments.

Michael Barr, a former Treasury official who worked closely with Miller, said he spoke with Miller and Gregg a month ago.

``They were exploring if there were any legal and practical alternatives. It was not obvious to them that the president has the legal authority to pick and choose who gets paid,'' he said.

The team has also spoken to the Federal Reserve about how the central bank -- specifically the Federal Reserve Bank of New York -- would operate as Treasury's broker in the markets if a deal to raise Treasury's $14.3 trillion borrowing cap is not reached on time. (Editing by Ross Colvin and Jackie Frank)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[zrants]

03:56 PM on 07/10/2011

What happened to the billions of dollars the US government borrowed to bail out the banks? The banks should give back the government now.

[Azterix]

01:12 AM on 07/09/2011

``They were exploring if there were any legal and practical alternatives. It was not obvious to them that the president has the legal authority to pick and choose who gets paid,'' Michael Bar said.

Oh boy! I can't wait to see who will be the first debt collector knocking at the Treasury's door. Bank of China with harassing calls as well?

[mjc]

05:26 PM on 07/08/2011

Apparently the present president believes the option is to give the Republicans what they have been drooling about for years: reduce Social Security, charge much more for Medicare, do away with Medicaid. Democrats are going to have to spend the next six years getting an agenda and a leader willing to implement it.

[wolfpack1960]

12:15 PM on 07/08/2011

Now children.......after the lesson learned wth Democrats in power for the past five years.................what have we learned???????

[hypnotoad72]

01:44 PM on 07/08/2011

Lots of things, but if you really want to converse with children, the person who posted the following would be the ideal person for you to converse with:

Now children..­.....after the lesson learned wth Democrats in power for the past five years.....­..........­..what have we learned???­????

BTW:  America's economic hell started long before Democrats were voted in.  After all, enough adults got tired of the republican policies.  You might want to read up on some of those - here's a start:

http://www.opencongress.org/articles/view/1500-The-Republicans-Haven-t-Always-Been-Against-Raising-the-Debt-Ceiling

http://suzieqq.wordpress.com/2011/04/14/current-gop-leaders-voted-19-times-to-increase-debt-limit-by-4-trillion-during-bush-presidency/

[wolfpack1960]

12:13 PM on 07/08/2011

LATEST NEWS.....................just in......The American economy falls to it's death after electinga president with NO business experiece......that has an advisor that cheated on his taxes......................we will continue to inform

[hypnotoad72]

01:46 PM on 07/08/2011

Well, two men named Bush had business experience or claimed to, as did Reagan.  They didn't help Main Street all that much either...

BTW, a little history lesson on Geithner - in case you're really so myopic.  Geithner was “involved in just about every flawed bailout” of the Bush era

[rbm0458]

11:02 AM on 07/08/2011

some ideas to reduce spending

1) alter the law(s) regarding pay raises for members of congress (no checks and balances at the moment)

2)reduce Military spending, with the possibility of reducing the military population (IE require higher ASVAB scores to create a smaller, more intelligent military that has lower operation costs)

2a) invoke the Madison doctrine: do not get involved in other countries wars (IE Libya)
2b) Pull out of Afghanistan sooner (look at history when the USSR invaded, they failed)

3)pay raises of federal worker by quality of work, not mandated by tenure or union regulations (if a person is doing their job properly, they have nothing to fear)

4) (not directly tied to spending, but to bring back jobs): Impose tariffs upon US based business that move the majority of their labor force overseas in an effort to make it cheaper to stay state-side

5) flat taxation upon income, tax brackets for business; In a nutshell, depending upon the income difference between the lowest paid job and the highest paid in a business, the difference will place the business into a tax bracket (rationale: top brass impose salary increases at the expense of the the larger (by money earned) working class, the business shall do its part to help outset any opportunity cost that the money could have been better spent on)

6) merge government departments (IE, DOD, DHS, FBI, NSA, CIA into a "Department of Public Safety", etc)

[null66]

10:54 AM on 07/08/2011

Americathon!

[tbryant80]

10:03 AM on 07/08/2011

Has the Treasury applied for a loan modification? It's worked wonders for everyday Americans...NOT

[Alvin Anderson]

01:09 AM on 07/08/2011

Don't worry everyone. I'm sure all those countries we're sending billions to, every day and who we have spent all our money on, tirllions and trillions of dollars, will come rushing to OUR rescue with money and goods to protect us in our time of need. It's not like they're drooling wolves, licking their chops at the prospect of our downfall. Maybe the GOP can re-nogiate the deal to sell our ports to our friends in the Middle East. I'm sure that would bring in lots of money.

[hypnotoad72]

01:58 PM on 07/08/2011

100% agreed. 

I've read a couple of articles making claims that they will.  If that happens, people will respond accordingly and appropriately.  But words are just words.  What happens is key and I suspect they are being told different words.  Different propaganda...

Speaking of propaganda,

http://www.washingtonpost.com/business/as-indian-companies-grow-in-the-us-outsourcing-comes-home/2011/05/17/AFZbrp7G_story_4.html

One Indian-born manager said he thinks that the U.S. standard of living has spoiled Americans and that they take less pride in their work. In other words, he says, they are lazy.

I know people who work hard, also do college full time, and are only as lazy as management wants them to be.  Hell, even I at my main job am told what amounts to "'good enough' is good enough".  Not to mention how 'quality control' has been devalued, and using other factors to procure lesser quality components.  It costs less, which means a happier CEO, shareholders, and others, to keep costs down - which is all they want.  Maybe some Americans are lazy, but that article is a real showpiece, showing anti-American sentiment.  (And don't get me started on the difference between "less educated" and when we've had to call for support, and various problems within...) 

Not to mention,
http://www.rawstory.com/rs/2011/04/13/general-motors-ceo-urged-to-address-indian-workers-complaints/
(I hope the nameless manager blindly spitting on Americans won't tell those workers at GM they're lazy, spoiled, or anything else...  maybe the manager calling everyone lazy should try doing some of that work, too...  expect his mindset to change in, what, 2 nanoseconds...)

[Reno Fickler]

11:55 PM on 07/07/2011

Is there an option? NO!
But how long can a 40% deficit economy hold on? To reduce 40% of govt spending reduces our entire economy 20% (they spend about half the money). Everything has to go down 20%. Now more bad news, taxes go up 10% across the board. Including Social Security. Retire @ 70.

[CSNC]

10:50 PM on 07/07/2011

This is a short reply/comment to Sandman911 and Robgrup...

... worrisome (to them) about socialism in the U.S. and Obama policies to help the economy.

Instead of repeating a job that other authors have already done so superbly, allow me to recommend the following HP essays:

1. http://www.huffingtonpost.com/bill-quigley/socialism-what-a-joke-the_b_773260.html

and

2. http://www.huffingtonpost.com/saul-friedman/socialism-can-be-as-ameri_b_730830.html

And please allow me to state one more item: do not be afraid of new things. Change/s can be a very good thing.

H

[deckercat]

09:10 PM on 07/07/2011

ignore those visigoths coming over the seventh hill

[AndyWright68]

07:35 PM on 07/07/2011

They are not going to avoid default regardless of what they do.

All empires fall and this world dominating empire will inevitably collapse. Theft and debt by state has never been this bad. It's all over!

[lambdin1]

05:38 PM on 07/07/2011

Just print more money. All the other governments do it!

[BlackbirdHighway]

08:37 PM on 07/07/2011

We call it "Quantitative Easing" and we have been doing it for years.

[GulfportM]

04:47 PM on 07/07/2011

One must ask a basic question. What does the Debt Ceiling and creating even more debt have to due with paying interest on outstanding Bonds with the Daily revenue of the US Government? Answer - Nothing.

The US has Plenty of Revenue, Which will not stop if the Government stops going further into debt, to pay any and all Outstanding Bond interest payments.

This is all a made up crisis. Democrats - We need More Debt

Republicans - Stop spending beyond what the Congress has appropriated

Dems- This is insurrection invoke the 14th Amendment Give Obama is king to spend whatever he wants.

[BlackbirdHighway]

08:43 PM on 07/07/2011

Congress has passed laws to spend the money, about 25% of the countries GDP. The revenue is 16% of GDP. The rest has to be borrowed.

Even if you thought it was a good idea to have Obama pick and choose which government spending to continue and which to stop, that is beyond the presidents constitutional power.