The Honorable Timothy Geithner
Secretary of the Treasury
Department of Treasury
Washington, DC 20229
Dear Mr. Secretary,
In light of your recent public comments conflating a decision not to raise the federal debt ceiling with outright default on the United States' debt obligations, we write seeking clarity about the administration's position. At issue is the stubborn fact that ultimate responsibility to use available Treasury funds to honor the debt obligations of the United States falls on you as Secretary of the Treasury. We believe it is irresponsible and harmful for you to sow the seeds of doubt in the market regarding the full faith and credit of the United States and ask that you set the record straight -- that you will use all available Treasury funds necessary to prevent default while Congress addresses the looming debt crisis.
As you know, capping the federal debt at $14.29 trillion would not, in and of itself, lead to default. The Treasury takes in more than enough money from taxpayers to cover interest payments on the national debt. According to the Congressional Budget Office, tax revenue is estimated to be $2.23 trillion in Fiscal Year 2011 while net interest payments will only amount to $213 billion. Even if the debt ceiling remains where it is, there will be more than enough money in the Treasury to make the government's debt payments, thereby avoiding default.
And yet, your recent public statements suggest you believe the opposite. On January 6, you wrote to Majority Leader Harry Reid that, "Failure to raise the limit would precipitate a default by the United States." Senator Patrick Toomey corrected this misstatement and introduced legislation, the Full Faith and Credit Act, which would statutorily guarantee prioritized payment of our debt obligations in the event of reaching the debt ceiling.
This proposal, which would protect the United States from default, you oppose.
In your February 3 letter to Sen. Toomey, you compare Sen. Toomey's proposal to an analogous decision by an average citizen:
"A homeowner could decide to "prioritize' and continue paying monthly mortgage payments, while opting to cease paying other obligations, such as car payments, insurance premiums, student loan and credit card payments, utilities, and so forth. Although the mortgage would be paid, the damage to that homeowner's creditworthiness would be severe."
But of course, making necessary payments on debts, like a home mortgage, a credit card, a car, or a student loan, is different from other personal spending. The consequences of missing those payments are truly dire -- default, bankruptcy, repossession, and eviction. But they are not at all the same thing as belt-tightening and prioritizing when times are tight. In the same way, cutting spending programs, reducing the federal workforce, and prioritizing payments to vendors and contractors is not the same thing as sovereign default.
The Treasury Department suggests that efforts to prioritize debt payments would bring about "catastrophic economic consequences." Yet, this argument ignores the historical record. As you are well aware, the Treasury had to manage the nation's finances in the past when the debt ceiling was reached. In 1995-1996, for example, the Department prioritized certain payments -- including debt service. During this period, hundreds of thousands of federal employees were furloughed and many programs were temporarily suspended as a result of the two government shutdowns that occurred. And yet, this prioritization did not result in default on our publicly held debt nor did it cause the "catastrophic economic consequences" the administration predicts.
Unfortunately, Washington has shown time and again that it is perfectly content to spend money on whatever suits its whims. That is why the debt limit exists in the first place -- to restrict the government's profligate spending and borrowing impulses and so protect the citizens responsible for paying it all back.
We believe the time has come to employ this particular budget enforcement mechanism to finally force Congress to address the looming fiscal crisis, cut spending, reform entitlements, implement spending caps, and pass a balanced budget constitutional amendment before considering any increase in the federal debt ceiling. These are the contours of the debate before the American people this spring and summer.
In the event of reaching the debt limit in the course of that debate, the decision of whether to use available Treasury funds to honor the United States' debt obligations -- and prevent the catastrophe of default -- would ultimately fall to you. Recent comments conflating debt service with other spending notwithstanding, the markets, the courts, and the American people know differently.
And so we write today asking for your assurance that, as Treasury Secretary, you will not continue to encourage uncertainty as to whether or not the U.S. government will default on its publicly held debt by failing to use the Treasury's sufficient funds to make necessary payments on the United States' debt obligations. Such uncertainty could cause the markets to doubt the full faith and credit of the United States.