Thursday, October 10, 2013

C-SPAN airs Treasury Secretary Lew's testimony on debt ceiling, lasts 70 minutes, remains high level

C-SPAN televised live the testimony by Treasury Secretary Jacob Lew this morning in front of the Senate Finance Committee on the possible consequences of not raising the debt ceiling.  The basic link is here.  CNN Money has a summary here. The hearing started at 8:30 AM and finished at 9:40 AM, with the last four Senators making remarks but not having time to get verbal responses. 
  
Lew’s remarks were general.  He said that he could not guarantee that the Treasury Department system could accurately prioritize payments to pay bondholders first even if President Obama decided he had the legal authority to do so.  However some Republicans (including Pat Toomey) have said that the Treasury already has a separate mechanism to pay bondholders, but it might have to the beta-tested quickly (see my IT blog posting this morning).  And conservative law professors admit that Social Security is a bondholder but a previous court opinion (Flemming v. Nestor) means that Congress can legally stop paying Social Security benefits in a national financial emergency. However, the testimony did not get to this level of specificity.
  
Lew emphasized that lifting the debt ceiling only authorizes the Treasury to pay bills already due based on what Congress had previously appropriated.  It does not create new spending.

Lew also said that the T-bill auction yesterday had been difficult, with short term interest rates much higher.
   
Democratic Senators followed the same logic as the White House.  But some Republican congressmen tried to conflate the current debt ceiling issue (paying current bills with borrowed money) with the total debt issue, saying that at some point the debt itself could cause the system to freeze.  Of course, that takes us far afield from the obsession with Obamacare a week ago.  Lew, as well as one or two Senators in each party, mentioned the “dollar as reserve currency” problem, which is the basis of Porter Stansberry’s doomsday scenario (“The End of America” on my “cf” blog, Sept. 1, 2013). 

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