An aide to Sen. Pat Toomey (R., Pa.) tells National Review Online that concerns over the Treasury’s potential prioritization of payments are misplaced.
Earlier today, a former Treasury official warned NRO that the U.S. might be unable to make interest payments without an increase in the debt ceiling because of rollover risk: By issuing new debt to pay old obligations, the Treasury might hit its debt limit and thus be unable to pay its bills. The aide says that “our debt auctions last only a day” and the Treasury clears its transactions quickly, never leaving itself above the debt limit.
True, the aide concedes, playing so close to the debt ceiling might spook financial markets into raising interest rates, but “those risks are remote and the markets know that.”
At this point, the president and the Treasury secretary should be reassuring markets, not scaring people, the aide says. When they talk about “default by another name” — that is, delaying payment on nonessential items — they’re “trying to scare people into giving them what they want.”
And delayed payment won’t be the end of the world, the aide argues. Consider the Federal Aviation Administration. Because Congress failed to pass the necessary legislation, the federal government currently lacks the authority to pay that entity and its employees. Yet markets, fully aware of the situation, have not reacted violently.
“The markets don’t care because they know that when [the issue is resolved] there will be legal authorization to make these payments,” the aide says. “As long as we pay the things we need to pay: the debt, Social Security, and the military” — as Toomey will propose in new legislation tomorrow – “everything else can wait.”