Treasury risking trust in U.S. debt with 'incorrect' warnings, Republican says

Sen. Pat Toomey (R-Pa.) has accused the Treasury Department of making "factually incorrect" statements about the debt limit that he says may be dissuading investors from buying the country's debt.

The freshman senator sent a letter to Treasury Secretary Timothy Geithner on Wednesday saying he was "deeply concerned" about recent administration comments on the debt limit that "needlessly jeopardize investor confidence in our ability and willingness to service our debt."

In particular, Toomey is taking Treasury to task for recent claims by department officials that the country could not avoid default on its debt after hitting the limit simply by prioritizing payments on U.S. obligations above other government payments.

"Not only are these comments factually incorrect and disproven by historical events, but, most disturbingly, they could undermine investor confidence in the U.S. government’s debt, thereby potentially precipitating some of the very reactions the Treasury Department should be preventing," Toomey wrote.

It marks the latest war of words between administration officials that have offered dire warnings about the fate of the U.S. economy if the borrowing limit is not raised and Republicans who are talking tough on the limit and demanding spending cuts in exchange for support.

Republicans in the House and Senate, including Toomey, are pushing legislation that would require Treasury to prioritize payments on principal and interest due on U.S. public debt if the borrowing limit is reached. Proponents argue the bill would remove the prospect of default from the debt-limit debate.

"Americans deserve the assurance that the U.S. government will not jeopardize their trust, their savings and their access to affordable borrowings," Toomey wrote. "It is important that we send a united, bipartisan message to the market that defaulting on our debt is not an option."

Treasury Deputy Secretary Neal Wolin wrote on the Treasury's website that the idea of prioritizing payments is "unworkable" and would still be seen by the world as a default on other legal obligations. Only an increase to the debt limit can prevent a default, Wolin said.

But Toomey maintained in his letter that the government has managed its finances after hitting the debt limit four different times, most recently in 2003. The Treasury avoided default on those occasions by prioritizing certain payments, including debt service on its bonds, Toomey said.

He is pushing for his bill to be included as an amendment to a reauthorization bill for the Federal Aviation Administration that is being considered in the Senate.

In a Jan. 6 letter, Geithner warned lawmakers that if failed they increase the debt limit, the nation and world could suffer "catastrophic economic consequences."

And Austan Goolsbee, chairman of the president's Council of Economic Advisers, has warned lawmakers against "playing chicken with the debt ceiling."

"This is not a game," he said Jan. 2 on ABC's "This Week." "If we hit the debt ceiling, that's essentially defaulting on our obligations, which is totally unprecedented in American history. The impact on the economy would be catastrophic."