You may not remember but in 2011, during the debt-ceiling showdown, I spent a lot of time arguing in the Corner against a straight up debt-ceiling increase. I fought that battle again in 2013. My main argument revolved around three points: 1) the U.S. shouldn’t default on its debt; 2) there is a world of difference between reaching the debt ceiling and defaulting on our debt; and 3) raising the debt ceiling without changing the fiscal path this country is on would be irresponsible.
In other words, the date set by the Department of Treasury at the time was far from set in stone since it could prioritize the payment of interest on the debt and could use contingency measures. The goal was to allow Congress to reach an agreement with the White House about adopting reforms that would put us on more sustainable path before raising the debt-ceiling limit again.
Reforms such as adopting a cut-as-you-go system, putting an end to the abuse of the emergency-spending label, or creating a BRAC-like commission for discretionary spending were easy first steps. Reforms like the MAP Act would have been good, too. Obviously, entitlement reforms should have been under consideration since these programs are the drivers of our future debt. I wrote a paper on the issue with my colleague Jason Fichtner listing all our different options. That study also listed the range of possible options available to Congress to avoid a default including a list of assets Treasury could use to avoid a default. We updated our paper in 2013.
Forcing Treasury to sell assets in order to pay the government’s bill may be undesirable and brought about by a series of repeated and unbelievably irresponsible decisions made continually for years by our leaders – yet it would be just as irresponsible to continue to pass debt-limit increases without putting in place a credible plan to reduce future government spending and put the nation back on a fiscal track so that Treasury can eventually pay off the nation’s debt.
At the time, the White House and Treasury’s message was that there was no way to prioritize or sell anything. In fact, president Obama and the secretary of Treasury (both Geithner in 2011 and Lew in 2013) were constantly waving the threat of default. They kept talking as if the sky would fall and the world would come to an end, seniors wouldn’t receive Social Security payments, interest on the debt wouldn’t be paid, etc. In fact, at the time, there were many voices even saying that using the debt-ceiling crisis to have a conversation about the pathetic state of the country’s finances was dangerous and irresponsible.
I claimed that this was ridiculous at the time. For one thing, these fights are the symptoms of how dysfunctional the government’s overspending habits have become. And who truly believes that we would have had a 2011 deficit-reduction deal if it weren’t for the debt-ceiling fight? Not Keith Hennessey.
Well, as it turns out, documents subpoenaed by the House Financial Services Committee reveal that during the 2013 debt ceiling debate, ”the Obama Administration is not only capable of prioritizing payments in case the nation’s borrowing authority is not raised, it has run ‘tabletop exercises’ to prepare for such a contingency – contradicting earlier public statements from Treasury officials.”
Here are some tidbits from the committee’s press release:
Made public for the first time, records turned over to the Committee in response to the subpoena show the Federal Reserve Bank of New York previously made plans to prioritize Social Security, veterans’ benefits, and principal and interest payments on the debt over other government obligations.
The Administration, however, directed the New York Fed to withhold this information from the Committee because “Treasury wants to maximize pressure on Congress by limiting communications about contingency planning,” according to a previously undisclosed internal email of the New York Fed….
Efforts by the Obama Administration to keep its contingency planning a secret were met with objections from officials at the Federal Reserve and the New York Fed, who described the approach in an email as “crazy, counter-productive, and add[ing] risk to an already risky situation.”
The documents reveal the following:
- Treasury is capable of prioritizing principal and interest payments on the debt and the New York Fed has been running “tabletop” debt ceiling exercises regarding these sorts of contingencies since at least March 2011.
- Treasury has sought to withhold from Congress and the American people information about the Administration’s contingency plans, for the purpose of pressuring Congress to acquiesce to the Administration’s position that any increase in the debt ceiling not be accompanied by spending constraints.
- Contrary to Treasury Secretary Jacob Lew’s testimony to Congress that the Administration has never made any decision to prioritize debt payments, internal New York Fed documents reveal that Treasury was in fact planning to prioritize payments during the debt limit impasses of 2013.
- Internal New York Fed records reveal that both New York Fed and Federal Reserve Board employees objected to Treasury’s efforts to conceal the Administration’s contingency plans because concealing this vital information added unnecessary risk to an already volatile situation.
- Treasury appears to have actively obstructed the Committee’s investigation of this matter by directing the New York Fed to withhold information from the Committee for approximately two years.
The committee is having a hearing today at which I am testifying.
While I am happy to have been right on this, I am sad about how far political parties are willing to go in misleading the public and scaring us to death to continue growing the size and scope of government.