Treasury Secretary Jack Lew appears before the Senate Finance Committee this morning to testify about what would happen if the federal government defaults on its debts. He has sounded the alarm in recent weeks and is likely to do so again today.
“I think that if you look at the calm out there, which I think is a bit greater than it should be, there’s a sense that 2011 was a terrible experience, and nobody would do that again,” he said on Sept. 24 at the Bloomberg Markets 50 Summit. The next day he told Congress that the U.S. will run out of money by Oct. 17 if it doesn’t raise the $16.7 trillion debt limit.
Expect Lew to address some of the hot topics that have arisen since then, including swatting down the growing ranks of “debt-limit deniers,” stressing the urgency of the deadline, and making a “formal presentation” that President Obama promised about whether the government can technically avoid defaulting if it pays bondholders but not other obligations like Social Security. Bloomberg Businessweek reporter Karen Weise is following the hearing, with real-time updates.
Lew’s prepared testimony is out, and he expresses a sense of urgency to raise the debt ceiling. He says a default would be “catastrophic” and creates “real risk of a financial crisis and recession that could echo the events of 2008 or worse.” Raising the limit “at the last minute” would be “very dangerous,” he says, saying that after October 17, the government will be stuck dealing only with “cash on hand and any incoming revenues” to pay its obligations. He goes on to dismiss the theory that the government could prioritize which debts its pays first to avoid technically defaulting on its debt. Finally, he says Congress should raise the debt ceiling without tacking on conditions over the budget. We’ll come back and break down some if his arguments from here.
