Monday, October 14, 2013 marks 150 days since the Treasury Department’s listing of public debt has not moved. The most current Daily Treasury report (October 10) shows “Total Public Debt Subject to Limit $ 16,699,396,000,000; Statutory Debt Limit $16,699,421,000,000.”
The record for these two entries has remained unchanged since May 17, 2013, the first time it recorded the public debt at $16,699,396,000,000.
Why is this important?
The Treasury reports show that the public debt has stayed at just about $25 million under the statutory legal limit ($16,699,421,095,673.60). However, a review of monthly budget reports created by the Congressional Budget Office (CBO), indicate something else is going on. These CBO reports list the receipts and outlays for each month. They continue to show deficits each month since May 17th, while the records of the Treasury do not show that the deficits have affected the federal debt in any way.
The total amount of deficit accrued in June, July, and August total $127 billion. The report for September, typically published in the beginning of the succeeding month — in this case, October — was not available. The CBO reported, “Because a lapse in appropriated funds has caused CBO to largely shut down its operations, the Monthly Budget Review, which ordinarily would be issued this morning, will not be published today or during the duration of the government shutdown”. We can safely assume it would show a deficit for September.
Despite the rising deficit, the Treasury reports no change in federal debt. What is going on?
Back to May 17th. Jack Lew, the Secretary of the Treasury, penned a letter to John Boehner, Speaker of the House. The letter notes,
As provided by Public Law 113-3, the statutory debt limit was suspended by Congress through May 18, 2013. Because Congress has not yet acted to approve normal borrowing authority after May 18, the Treasury Department will begin implementing the standard set of extraordinary measures that enable us, on a temporary basis, to protect the full faith and credit of the United States by continuing to pay the nation’S bills. These measures are the same ones that have been used in previous debt limit impasses, and are described in detail in an appendix to this letter.
The appendix describes four particular measures that would free up money:
(1) suspending sales of State and Local Government Series Treasury securities;
(2) redeeming existing, and suspending new, investments of the Civil Service Retirement and Disability Fund and the Postal Service Retirees Health Benefit Fund;
(3) suspending reinvestment of the Government Securities Investment Fund; and
(4) suspending reinvestment of the Exchange Stabilization Fund
These four actions were calculated by Lew to “free up approximately $260 billion in headroom”.
The current date for hitting the debt ceiling is sometime between October 17 – November 1, according to recent testimony by Jack Lew to Congress on October 10. Lew described catastrophic consequences for its obligations, citing possible interruption of benefits to Social Security, Medicare, military and veterans among others. However, Lew refused to entertain the possibility of prioritizing payments.. He warned, “If Congress does not act and the United States suddenly cannot pay its bills, the repercussions would be serious”.
In contrast, a memo from Moody’s Investment Service dated October 7, three days prior to Lew’s testimony, painted a different story. Moody’s opined that, ”We believe the government would continue to pay interest and principal on its debt even in the event that the debt limit is not raised, leaving its creditworthiness intact,”. It went on to say that, “The debt limit restricts government expenditures to the amount of its incoming revenues; it does not prohibit the government from servicing its debt. There is no direct connection between the debt limit (actually the exhaustion of the Treasury’s extraordinary measures to raise funds) and a default”.
National Review Online noted that the Treasury department did not respond for comment on Moody’s memo.
Lew has supposedly already gone through the extraordinary measures of $260 billion worth of transaction-suspending these last five months, which might explain how the Treasury reports show no change in debt, leaving a tiny legal limit cushion of $25 million. At some point, those transactions suspensions will have to be made up, along with continuing to pay on our obligations.
In other words, the Administration is currently picking and choosing what parts of government to fund. But isn’t that exactly what Obama is lambasting the Republicans for — offering a budget that suspends the funding of something (Obamacare), an action that is perfectly within their constitutional right to do?
In fact, suspending the funding of Obamacare for a year will have the same fiscal impact as Lew’s current actions: freeing up money. The CBO estimates that it will give us “headroom” of $35 billion over 10 years.
Why does Jack Lew get to decide what parts of government get funded or not funded but the House of Representatives does not?
A interesting thing to note about Lew’s testimony is that, besides rejecting the possibility of prioritizing payments, Lew also declined to be specific about 1) the amount to which Obama wanted the ceiling to be raised and 2) the length of time, i.e. the next deadline. The open-endedness of the position of Obama’s Administration regarding the debt ceiling should raise some red flags for those who are leery of raising it.
Thomas Jefferson wisely observed, “I place economy among the first and most important of republican virtues, and public debt as the greatest of the dangers to be feared”.
For those who are worried about our public debt, have no fear! The Treasury Department’s FAQ’s already have a solution. Did you know:
“There are two ways for you to make a contribution to reduce the debt:
You can make a contribution online either by credit card, checking or savings account at Pay.gov
You can write a check payable to the Bureau of the Public Debt, and in the memo section, notate that it’s a Gift to reduce the Debt Held by the Public. Mail your check to:
Attn Dept G
Bureau of the Public Debt
P. O. Box 2188
Parkersburg, WV 26106-2188”
Despite our government shutdown, pay.gov is still up and running, and is happy to accept your money.
(And the 16 trillion dollar question is — if one makes a contribution, will the Treasury department reports show it?)