The Treasury Department will explain how it will deal with overdue bills in the event of a default “as we get closer to [August 2],” White House press secretary Jay Carney told reporters on Thursday. But he also described the process as “an impossible situation” and declined to comment further.
Carney appeared to be trying to walk back comments he made at Wednesday’s briefing, when he implied the administration would say what would and would not be paid for in the event of a default as the deadline approached, essentially prioritizing bill payment.
He declined to offer specifics on Thursday, instead returning to the argument that the White House believes a compromise would be achieved, averting a default.
“What we need to do is get beyond, you know, voting on dead-on-arrival measures that won't become law when we have so few days left to reach a compromise. We need to get that kind of political theater out of our system and get to work on something that can actually pass both houses with bipartisan support and be signed by the president,” Carney said.
Articles in Thursday's The New York Times and Wall Street Journal described how the Treasury Department might prioritize its bill payments.
Wall Street officials think the Treasury Department would give priority to bondholders, including foreign governments, to avoid default, the Journal said. Placing bondholders before Social Security recipients, among others, could incite political outrage and result in a market disruption, a downgrading of the U.S. debt rating, and lawsuits, one banker told The Journal.
The Times, however, cautions that Treasury cannot pay bills based on political, moral, or economic considerations. The implication is that Treasury will pay the bills as they come due.
How to order payments isn’t the only plan Treasury officials will have to make. There are also technical challenges in ceasing to pay bills. The process is largely automated and would need to be adjusted to allow for the Treasury’s contingency planning, The Times said. And it’s not clear whether the systems that control computerized payments could be reprogrammed in time, The Journal noted.
Some independent analysts say the government has sufficient funds to pay its bills through August 10, The Times reports, although the Treasury and White House have stuck firm to the August 2 deadline. “There are no off-ramps. People keep looking for off-ramps,” Carney said on Wednesday, telling reporters that the government would be “basically running on fumes” after midnight on August 2.
Carney also said Thursday that he didn’t know of any contact between the administration and the credit agencies that are threatening to downgrade the nation’s AAA-bond rating if there is a default or a deal is passed that does not give them confidence that the debt-ceiling issue has been resolved.
Treasury Secretary Timothy Geithner is scheduled to meet with President Obama on Thursday.
Rebecca Kaplan contributed