Debt ceiling dilemma: Who gets paid first?
Newly redesigned $100 notes lay in stacks at the Bureau of Engraving and Printing on May 20, 2013 in Washington, D.C.
Treasury Secretary Jack Lew says, come October 17, he’ll only have about $30 billion in cash on hand. It may sounds like a lot, but the government writes 80 million checks a month, and it can pay out $60 billion in just one day. If Congress doesn't raise the nation's cap on debt before then, the government won't be able to borrow money to pay bills.
Analysts say the government has a couple of options if that happens.
Pay the bills as they come, but pay them late. Say the government owes $40 billion on a Monday but doesn’t have the money until Tuesday, says Steve Bell of the Bipartisan Policy Center. What happens? “They will then pay all of Monday’s debts," Bell says. "And then they’ll start accumulating more cash, so at some point that week they can pay Tuesday’s debts.” Of course, you can only do that so long before you get really behind on your bills.
The U.S. could prioritize its payments. Maybe the government would make Social Security and defense payments first. But Treasury isn’t sure it has the authority to do that, because the constitution gives Congress the power of the purse. “Congress decides what programs are funded and what benefits are funded and at what levels," says Nancy Vanden Houten, an analyst at Stone McCarthy Research Associates.
There’s another idea out there, and the Treasury Department might find it quite appealing. Ignore Congress. Ignore the debt ceiling. Borrow anyway. Economist Paul Van de Water of the Center on Budget and Policy Priorities calls it a "very real possibility," because the constitution also says the government has to pay its debts.