Portions of the federal government have been shut down for three full days, and lawmakers remain stalemated over government spending. The White House, however, has bigger concerns.
“It’s something called raising the debt ceiling,” President Obama said Thursdaywhile visiting a small business in Rockville, Md.
The debt limit is the nation’s statutory borrowing limit, and as the president explained, “It sounds like we’re raising our debt, but that’s not what this is about.” Congress decides through separate spending bills how much debt to rack up; the debt limit is simply the amount that the U.S. Treasury is allowed to pay back.
“You don’t save money by not paying your bills,” Mr. Obama said, likening the scenario to eating a pricey meal and then refusing to pay the tab. “You don’t reduce your debt by not paying your bills. All you’re doing is making yourself unreliable and hurting your credit rating... Well, the same is true for countries.”
Currently, the debt limit stands at $16.69 trillion. The Treasury actually hit that limit in May and has been using “extraordinary measures” since then to avoid defaulting on the nation’s debts. Treasury Secretary Jack Lew has said those extraordinary measures will be exhausted on Oct. 17, and at that point, if Congress doesn’t raise the debt limit, the U.S. would have to use cash balances on hand to fund the nearly $4 trillion in operations of the government. Doing so would put at risk the nation’s financial obligations to programs like Social Security and Medicare.
“What I can tell you is that in the absence of action, we’re looking at a very real deadline that we will not have the ability to borrow money after Oct. 17th. And we will run down our cash very quickly,” Lew said on Fox Business Network on Thursday.
The Treasury Department on Thursday released a report on the potential economic impact of debt ceiling brinksmanship, noting that a default could freeze credit markets, sink the value of the dollar and send interest rates skyrocketing. In 2011, when Congress merely flirted with the prospect of letting the nation default on its loans, the Dow Jones Industrial Average dropped over 2,000 points and Standard and Poor’s downgraded the United States’ credit rating.
Mr. Obama warned Thursday that for all of the negative consequences of a government shutdown, “an economic shutdown that results from default would be dramatically worse.”
“In a government shutdown, Social Security checks still go out on time. In an economic shutdown, if we don’t raise the debt ceiling, they don’t,” he said. “In an economic shutdown, falling pensions and home values and rising interest rates... all those things risk putting us back into a bad recession.”
He reiterated that he will not negotiate over the debt limit.
“There will be no negotiations over this,” he said. “The American people are not pawns in some political game. You don’t get to demand some ransom in exchange for keeping the government running... for keeping the economy running.”
However, with little progress over the spending bill (referred to as a continuing resolution, or CR) that would re-open the government, House Republican leaders have said they’ll attempt touse the debt limit as a bargaining chip in economic negotiations.
On Thursday, the New York Times reported that Boehner has told members of his caucus that he will not let the nation default on its debt and will be willing to put a bill on the House floor to raise the debt ceiling, even if it doesn’t have the support of a majority of House Republicans.
Still, the White House on Thursday sounded skeptical.
“Even the story that you cite,” White House spokesman Jay Carney said in response to the Times’ report, “which reports that the Speaker said something privately to Republican members, one of his spokesmen was on the record basically reiterating the same list of demands associated with raising the debt ceiling that we’ve seen in the past.”
Carney added, “We are very concerned about the possibility that Republicans in the House will employee the same unfortunate tactics when it comes to the fundamental responsibility to raise the debt ceiling, and make sure that the United States doesn’t default, as they have employed in shutting down the government.”
With Congress coming so close to the Oct. 17 deadline set by the Treasury, some have suggested Mr. Obama should bypass Congress. Senate Finance Committee Chairman Max Baucus, D-Mont., reportedly said that invoking the 14th Amendment to raise the debt limit is “an option that should seriously be considered.”
Some say the 14th Amendment gives the president authority to tell the Treasury Secretary to continue financing the nation’s deficits through the sale of Treasury notes and bonds. The relevant section of the 14th Amendment says in part, “The validity of the public debt of the United States, authorized by law... shall not be questioned.”
However, the Obama administration on Thursday was quick to shoot down that suggestion.
“This administration does not believe that the 14th Amendment gives the power to the president to ignore the debt ceiling,” Carney said. “Moreover, even if the president could ignore the debt ceiling, the fact that there is significant controversy around the president’s authority to act unilaterally means that it would not be a credible alternative to Congress raising the debt ceiling and would not be taken seriously by the global economy or the markets, and that is essentially the point of faith and credit.”
He continued, “The reason why our economy is the envy of the world, the reason why our currency is the reserve currency of the world is because of that faith that investors around the world have in our constancy. They know that we pay our bills. They know that we’re true to our word. And so even the doubt that would be created by that would undermine the faith that’s the whole point of this exercise.”
Indeed, when bypassing Congress via the 14th Amendment came up as an option in 2011, some lawmakers cried foul. Republican Sens. Lindsey Graham of South Carolina and John Cornyn of Texas introduced a resolution making clear that Mr. Obama does not have the authority to pull off a “debt limit dodge,” as they called it.