While publicly claiming there is no way to prevent the government from defaulting on Aug. 2 other than Congress raising the debt ceiling, the Treasury Department is privately looking for an escape hatch should the unthinkable become a reality.
Reuters reports Treasury Secretary Tim Geithner and key department officials have identified three contingency plans to allow the government to make good on its obligations, should the deadline come around with no agreement on the debt ceiling.
Here they are:
- Delaying payments to manage cash flows after Aug 2. The Birpartisan Policy centre says such a solution may be manageable for a few days, but it won’t solve the problem in the event of an extended impasse.
- Using the 14th Amendment to declare the debt limit unconstitutional. Legal scholars are split on this argument, and it would certainly lead to a high-stakes court battle. The White House reportedly has ruled out this option, noting the significant political — as well as economic — risks.
- Prioritizing payments on debt obligations. The Government Accountability Office said in a 1985 report that Treasury has the ability to prioritise payments, it is by no means certain that the department legally has the right to withhold some payments, but making others.
While these plans may technically prevent the government from defaulting on its obligations, its no secret why the Treasury Department wants a real deal. Bond rating agencies have said they will lower outlooks on U.S. debt, if not downgrade them, in the event a deal is not reached by Aug. 2, regardless of what contingencies are put in place.
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