Media Push Unworkable Prioritized Payments Approach To Debt Ceiling Crisis

[Bill USA]

http://mediamatters.org/research/2013/10/07/media-push-unworkable-prioritized-payments-appr/196310

Major media outlets are pushing the narrative that the United States Department of the Treasury could prioritize payments to bond holders and select groups of recipients in lieu of an increase of the federal borrowing limit, also known as the debt ceiling, beyond October 17. This ignores Treasury Department officials and other experts who explain such prioritization is unworkable and legally dubious, and that default would still happen.

http://mediamatters.org/embed/clips/2013/10/06/32331/cnn-sotu-20131006-debtceiling

Media Push Republican Argument That Prioritizing Payments Would Avert Default On Debt

Republicans Argue U.S. Could Avert Default By Forcing Treasury Department To Prioritize Interest Payments To U.S. Creditors Using Tax Revenue. An October 6 National Journal article reported that Republicans are trying to force the Treasury Department to prioritize payments on the nation's debt, delaying payments to other agencies, and that Republicans say this would avert default unless President Obama chose to default by not making debt payments:

[Gothmog]

1. This concept does not work

This concept is simply unworkable

[Gothmog]

2. Here is a good analysis as to why this does not work

According to an expert at Morgan Stanley, Jack Lew will have to decide which law he is going to break. http://www.businessinsider.com/morgan-stanley-economist-if-we-breach-the-debt-ceiling-jack-lew-must-decide-which-law-to-break-2013-10

If the Treasury is unwilling to stretch the definition of extraordinary measures, on the day that the Federal Reserve predicts that the Treasury will run out of cash in its account and the Treasury is bound by the debt ceiling, it suspends all payments and awaits instructions from the Treasury. As a result, the government’s principal economic officials will face the prospect of violating one of these three laws:

1. The Second Liberty Bond Act of 1917 that establishes the debt ceiling;

2. The Federal Reserve Act that prohibits the Fed from lending directly to the Treasury; or,

3. The 14th Amendment of the Constitution that holds that the debt of the United States government, lawfully issued, will not be questioned.

They have to break a law. At the end of the day, officials will avoid violating the Constitution by indicating that they have been given inconsistent instructions and are obeying the one with the most important precedent.

Basically in Reinhart's formulation, Lew will opt to break the debt ceiling law, citing constitutional obligations to continue servicing the debt.

Read more: http://www.businessinsider.com/morgan-stanley-economist-if-we-breach-the-debt-ceiling-jack-lew-must-decide-which-law-to-break-2013-10#ixzz2h5HfOYfQ

The concept that one can default on certain obligations is simply wrong

[chill_wind]

3. There was a hint of a PLAN B in 2011,

surrounding the notions of prioritization, but never confirmed, nor would they be acknowledged again now, if that were even possibly the case.

(...)

[quote]OPTIONS "PRETTY UGLY"

(snip)

Steve McMillin, a former deputy director of the White House Office of Management and Budget under Bush, said Treasury has options but most of them are "pretty ugly."

If Treasury were to decide to delay payments, it would need to re-program government computers that generate automatic payments as they fall due -- a massive and difficult undertaking. Treasury makes about 3 million payments each day.

HINT OF PLAN B COULD HURT TALKS

http://www.reuters.com/article/2011/07/07/us-usa-debt-exclusive-idUSTRE7660GE20110707

Jack Balkin speculates that while that might have been out of the question in 2011, maybe that was a galvanizing event-- that some sort of technological headway has maybe been spurred and made since, in anticipation of this kind of recurring GOP insanity. Maybe it's just naive-- very simple hopefulness, wishful thinking--- but he's right that in any such reality, Obama could in no way afford to clue the GOPHERS in and give them any leverage to use around that.

Balkin wrote this past September 24:

A better argument, it seems to me, is not about law but about technology. The Treasury Department has programmed its computers to send out checks automatically. There is no prioritization mechanism built in, and it would be too difficult to program a temporary prioritization mechanism in a hurry. But this argument, too, leads to some important unanswered questions.

First, once we learned that the Republican Party had breached existing political conventions two years ago and was willing to threaten default as a bargaining chip on a regular basis, why didn't the Administration set about creating new software programs for prioritization that would deal with such an eventuality? After all, if you have just avoided a flood and you think that another flood may be coming soon, you build levees. You would be foolish not to.

Perhaps the Obama Administration has already created new prioritization programs, and a system for issuing IOU's that promise payment but offer no interest pending resolution of the crisis (hence they are technically within the debt ceiling). But the Administration doesn't want to tell anyone about its preparations because that would encourage the Republicans to be irresponsible. This is a bit like the game of chicken in which the best strategy is to throw your steeling wheel out the window so that there is no way to avoid hitting the other car if it continues on its path. If so, then the Obama Administration is being less than fully candid about the consequences of a debt ceiling crisis in order to maximize its bargaining leverage. That is certainly what some Republicans seem to believe. But the point is, they don't know what the Administration has actually done by way of preparations, and the Administration has no incentive to be forthcoming on this point. There is always that chance that Administration may actually have thrown the steering wheel out the window.

more at http://balkin.blogspot.com/2013/09/shutdown-versus-default.html

[blkmusclmachine]

4. America, Meet Bathtub.

11-Dimensional Bipartisanship