Raising the Debt Ceiling

If debt deadline is missed, who will get paid?

David Gura Jul 28, 2011
Raising the Debt Ceiling

If debt deadline is missed, who will get paid?

David Gura Jul 28, 2011

Jeremy Hobson: I could start off with the latest back and forth on the debt ceiling. The different plans being voted on in Congress. The statements from each side that there will eventually be a deal — but of course, not the one that the other side wants.

But since there are only five days left ’til D-Day, rather than hope for the best, it’s probably best for all of us to start thinking about the other possibility.

If the government defaults, it’s going to affect everybody. I’m retired now and I’m on a pension, but the state may decide it really can’t afford to pay my pension anymore and discontinue it or something.

It’s nothing but scary.

It’s a high stakes game that I think both sides realize that nobody wins if we do default.

So we’re reluctant to buy bonds right now also until we know what’s going to know happen with the debt ceiling and whatnot.

We were a little hesitant on investments right now; we were thinking of it, which, you know, we decided to wait and see.

We’re digging a hole. We haven’t done anything to prepare; I think we’re just going to wait it out. It’s going to be disastrous.

That was Bob Ingersoll, Carolyn McDermott, Lev Herrnson and Jeanne Custis here in Los Angeles, and Chris Starrs and Sal Garner in Washington, D.C.

So if Congress doesn’t vote to raise the debt limit by next Tuesday, the U.S. government is going to be in a tough spot. The Treasury Department will have to decide what bills to pay and what bills not to pay. As you can imagine, that information is being kept pretty close to the vest.

From Washington, here’s Marketplace’s David Gura.

David Gura: The White House press secretary says the government writes about 80 million checks a month.

Jay Carney: Veterans’ payments, Social Security payments, disability payments. They include the bills to contractors, small business, big businesses that do work with the government.

Jay Carney says that if Congress doesn’t raise the debt ceiling:

Carney: Choices then have to be made.

When George H.W. Bush was president, Jay Powell was undersecretary of the Treasury. Now he’s at the Bipartisan Policy Center.

Jay Powell: Let’s say that we decide to protect all of the safety-net payment recipients.

Americans who get veterans’ benefits and Social Security, Medicare, Medicaid and unemployment. Powell says the government should be able to cover those bills — and pay interest on the debt. But not much more.

Powell: No money for the troops. No money for the companies that are supplying the troops in the field, even those in combat. There’s also no money for the Justice Department.

And if the government decides to pay the troops? There wouldn’t be enough to pay benefits. The Treasury Department’s working on a plan, but according to Powell, it’s not really up to them.

Powell: There is no role in our constitutional system for the executive branch to decide to prefer one form of spending over another.

That’s up to the legislative branch. Rick Carnell was an assistant Treasury secretary during the Clinton administration. He says Congress may allocate money for a certain program.

Rick Carnell: But, in many cases, it doesn’t dictate how quickly the payment needs to be made.

So, the Treasury Department could postpone that payment. It could decide to pay bills chronologically, when they’re due — starting on August 3rd, with $23 billion of Social Security benefits.

In Washington, I’m David Gura for Marketplace.

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