The administration is facing a problem: It wants to emphasise that August 2 really is the drop dead date for the government to get a debt ceiling deal, after which the US will default, creating a catastrophe. And yet nobody really believes the administration on this.
So while Geithner spent time today, hitting up the Sunday shows on the matter, here’s what GOP Senator Jim DeMint said today on the matter, via POLITICO:
“The fact is we will pay our debts if it’s the last dollar we have. There are enough assets in Social Security and Medicare to pay the benefits of those programs for several years. Other programs can be funded from tax revenue. There certainly will be disruption…But this is not a deadline we should rush and make a bad deal and do something that cuts benefits from seniors without giving them better choices.”
This is the $14 trillion question: To what extent can we prioritise payments under existing laws?
First, there’s an issue of authority: Can the President/Treasury actually do this unilaterally?
Then there’s the technical matter: Does the Treasury actually have the infrastructure to cancel payments to everyone, while also ensuring that bondholders get paid?
And then finally there’s the issue of whether or not payment prioritization would look bad to US creditors? Geithner has claimed that it would look bad if we started paying some bills (Treasury coupons) at the expense of other bills (regular old bills), but this is where he’s on the thinnest ice, since there’s really nothing unusual at all about cutting back some expenses to pay a debt, whether you’re a company or a country.
Meanwhile, Geithner says that to hit the deadline, we really need something in the next week or so.
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