By Peter Schroeder - 10/10/13 02:50 PM EDT
Treasury Secretary Jack Lew on Thursday denounced "irresponsible and reckless" arguments against boosting the $16.7 trillion debt limit.
In testimony before Congress, the president's top economic adviser took aim at Republican "deniers" who contend that a failure to raise the debt ceiling wouldn't lead to a default.
Without a debt-limit boost, Lew warned that everything from Social Security payments to pay for active military members would be in jeopardy. He also insisted that Treasury’s automated payment system, which processes 80 million payments a month, cannot be effectively altered to pick and choose which payments to make if the government is short on cash.
“If we don’t have enough cash to pay all our bills, we will be failing to meet our obligations and under any scenario, we will be defaulting,” he said. “There is no plan other than raising the debt limit.”
“It is clear that we have a debt problem,” said Sen. Orrin Hatch (R-Utah), the ranking member of the Senate Finance Committee. “We can and should use this as an opportunity to address these problems.”
However, almost no Senate Republicans seriously raised the idea of not raising the debt limit at all, and there was unanimous agreement that a failure to boost the cap would be disruptive to markets and put a host of government obligations at risk.
The closest any senator came to downplaying the debt limit was when Sen. Pat Toomey (R-Pa.) asked Lew to promise that the government would prioritize interest payments on Treasury debt if the cap were not raised.
Lew admitted the Treasury has looked into “many options,” but insisted that the only reasonable option is to raise the debt limit.
“The options are all bad,” Lew said. “There is no way to make our federal payment system work well if we have to pick and choose what we pay.”
Toomey said he was “extremely disappointed” that Lew would not “reassure financial markets … that they don’t have to worry.”
For his part, Lew urged Congress to extend the debt limit for as long as possible, even as reports emerged that House GOP leaders were considering a six-week increase. Lew said the president would look hard at a stopgap measure.
But the overarching message from Lew’s testimony was that the debt limit has always been raised, and anyone who believes the nation and worldwide economy can navigate around it is wrong.
He pointed out that the market is already reacting adversely to the debt-limit standoff, noting that the rates on Treasury bonds that mature shortly around the end of October have tripled in the last few days. Any spike in borrowing rates for the government would trickle down into higher rates for mortgages, student loans and a host of other financial products used by most Americans, he said.
"It is irresponsible and reckless to insist that we experience a forced default to learn how bad it is," Lew said in testimony. "If anything at all is learned from the shutdown, it will convince the deniers — or a majority who can work their will — to avoid putting the entire economy at risk in the name of an ideological fight."
Treasury has set an Oct. 17 deadline for raising the debt limit, but it is unclear whether Congress will meet it.
Lew has told Congress that on Oct. 17, the government would be left with just $30 billion in cash, and could find itself with insufficient funds to pay the bills on any given day.
Lew contended that it would be "very dangerous" for Congress to try to push debt limit talks beyond Oct. 17. He noted that the Treasury regularly has to roll over large amounts of maturing debt with new bonds. If markets balk at buying the debt, the Treasury could suddenly lose its entire cash balance.
“If you look for the last minute and you make a mistake, you’ve done serious damage to the U.S. economy and the world economy,” he said. “It’s reckless.”
He also criticized a core GOP talking point during the standoff.
Republicans from Speaker John Boehner (R-Ohio) on down have argued that the debt limit has regularly served as an opportunity to force fiscal reforms and that Republican demands this time around are no different.
Obama has likened the GOP's use of the debt limit to "extortion," and Lew contended that previous fiscal reforms paired with the debt limit never used the threat of default as a viable outcome.
“The affirmative case was made in 2011, a certain faction … in the House did not get its way; they would prefer default over a compromise,” he said. “That is different. It’s just different.”
But Republicans argued that the leverage the debt limit provides might be the only thing that forces action on the nation’s fiscal problems.
“It’s all that has worked to deal with this,” said Sen. Rob Portman (R-Ohio).
— This story was first posted at 8:07 a.m. and has been updated.