I understand the strategy that consists of making a risk look much worse than it is in order to get something you want, but Treasury Secretary Tim Geithner is really pushing it. On Friday, he sent another letter to Sen. Michael Bennet (D, CO) arguing that a U.S. default would cause a double-dip recession and focusing on the doomsday scenario if we default on the debt.
I wish he would stop. We know that the debt ceiling will ultimately be raised. The real question is which safeguards and reforms need to be put in place so that the United States gets off the unsustainable financial path it is currently on. Designing such reforms take time and there is no need to rush. The good news is that we have time. Besides, I think it has been well established that when the secretary claimed in the past that he wouldn’t be able to advert a default if the ceiling wasn’t raised by the time we hit the limit, he didn’t really mean it. For one thing, May 16 came and went and the sky didn’t fall, Second, his actions have demonstrated that when he sets a date at which the U.S. will default on its debt, that date really shouldn’t be taken seriously.
Also, it is really shocking to read Secretary Geithner continue to make threats about not being able to send out Social Security checks, Medicare payments, or military paychecks. This year, this would only be the case if Geithner decided not to pay for these obligations. According to the GAO, the Treasury secretary has the authority to prioritize payments, which means that, considering the country’s assets and revenue, there is enough cash to pay for these priorities and Geithner can make these payments first — that is, if he wants to. (Not to mention that as long as there are assets in the Social Security trust funds, Treasury has to honor them.)
As a side note, the Washington Post had a substance free article that was quick to point out that back in the 1980s, President Reagan warned of a possible U.S. default if the debt ceiling wasn’t raised. However, the Post failed to mention that one thing that came out of that debate was that Treasury has the authority to prioritize its payments.
The bottom line is that the United States has enough expected cash flow (tax revenue) and assets on hand to avoid either defaulting or raising the debt ceiling. And while at some point the debt ceiling will have to be raised, it is essential that part of the legislation that increases the debt ceiling also provide for a framework to reduce government spending and eventually reduce the need to borrow more money.