Recalling the damage caused in 2011 by the drawn-out debate in Congress over raising the nation’s debt limit, Secretary Lew cautioned that repeating the same mistake this time around could once again disrupt financial markets and roll back economic progress. In remarks to The Economic Club of Washington, D.C. yesterday, Lew warned that the 2011 debate fundamentally changed the stakes as leaders in Congress – for the first time ever - held a debate “over whether the United States should voluntarily default on its obligations.” Though Congress ultimately raised the debt limit, Lew noted that the brinksmanship “led to business uncertainty, a drop in consumer confidence, and the first ever downgrade of the nation’s AAA credit rating.”
We reached the debt ceiling in May. Since that time, Treasury has used what are called extraordinary measures to avoid defaulting on our obligations, and Secretary Lew has made clear that such measures will be exhausted by mid-October:
Lew: Once you hit the end of extraordinary measures your borrowing authority is gone. You have no more ability to borrow and you're then left with cash. As any small business person knows, if you're operating your business relying on cash in the cash box to pay your daily bills, if your revenue is not adequate on a given day and you empty the cash box, you can't pay all your bills when the cash box is empty. I can't say with precision when that is but I can tell you I can't refill the cash box once we've lost our ability to use extraordinary measures. That is going to happen in mid-October.
In his remarks, the Secretary cautioned against relying on unworkable approaches like "prioritization," which would force impossible choices in paying the government's bills like whether to pay seniors or veterans the benefits they are owed.
“As administrations of both political parties have previously determined: these 'prioritization' proposals are unworkable. They represent an irresponsible retreat from a core American value: Since 1789, regardless of party, Presidents and Congress have always honored all of our commitments,” Lew told the room of business leaders.
Take a moment to watch Secretary Lew explain why the nation’s credit should never be up for negotiation:
Brandi Hoffine is a Spokesperson for Domestic Finance at the U.S. Department of the Treasury.