Now that we understand the source of the disagreement, let’s look at the calendar and fact-check the Treasury’s claim that it is at the mercy of its automated payments system and will have no choice but to default if Congress fails to raise the debt ceiling. In an Oct. 1 letter to Congress, Lew said the Treasury will have exhausted its extraordinary measures, which allow it to keep borrowing, by Oct. 17. The Treasury expects to have $30 billion in cash on hand at that time.
Interest payments on Treasury notes and bonds are due on the 15th and the final day of the month. The next interest payment, following the Oct. 17 drop-dead date, is due Oct. 31 in the amount of $5.9 billion.
There is more than enough tax revenue coming in every month to cover interest payments. Maturing debt can be rolled over without any impact on the debt limit.
When it comes to the Treasury’s payment system, debt and nondebt are handled separately. Sovereign-debt payments are distributed via Fedwire, the Fed’s electronic funds-transfer system. Other payments and collections are handled by the Treasury’s Financial Management Service. Segregation of the two types of payments makes it even harder to understand the Treasury’s claim that it can’t flip the switch and shut off nondebt payments.
House Republicans passed a measure authorizing the Treasury to use tax receipts to make interest and Social Security payments if the debt ceiling is breached, but the bill is going nowhere in the Senate.
I am not suggesting that prioritizing payments would be simple or popular. Households and businesses do it all the time — without any specific statutory authority, I might add. When times are tough, a family may opt to make the monthly mortgage payment and forgo paying credit-card interest because the consequences of home-loan delinquency are far greater.