Republicans ready for debt-ceiling battle

2013-01-16 16:49
(Picture:  AP)

(Picture: AP)

Multimedia   ·   User Galleries   ·   News in Pictures Send us your pictures  ·  Send us your stories

Washington - Republican lawmakers are preparing to introduce legislation to direct the US Treasury to make interest payments on American bonds first and then prioritise other government outlays in case Congress does not raise the debt ceiling.

Supporters of the idea see it as a politically palatable alternative to default, which could rattle markets as occurred in the summer of 2011.

The likelihood of another market-unsettling event is challenging Republicans to find another idea as they use the debt ceiling as leverage to extract spending cuts from President Barack Obama.

But critics, including some Republicans, say prioritising payments is largely unworkable and would not fool the markets.

The Treasury hit the $16.4tn debt ceiling, or the legal amount it is allowed to borrow, on New Year's Eve and started moving funds around so that the government can continue paying its bills.

But the department said it will run out of funds as early as mid-February.

Among those advocating the approach is Republican Senator Pat Toomey of Pennsylvania, who is expected to reintroduce legislation next week to instruct the Treasury to make sure bond-holders, got paid first if Congress does not raise the debt ceiling by the deadline.

In the House of Representatives, Arizona Republican David Schweikert introduced legislation that would force the Treasury to prioritize payments to bond-holders, Social Security recipients and military salaries.

"No one is talking about default except for the president," said Patrick Tiberi, a Republican Representative from Ohio who heads a tax-writing subcommittee.

"He doesn't need to default because he has enough revenue, money coming in from the taxes that you guys pay to pay bills," Tiberi told reporters on Tuesday.

"Ninety-nine percent of my constituents would say that sending out Social Security payments and keeping veteran hospitals open is a bigger priority than national parks," he said.

But former advisers to Republican President George W Bush say the idea is unworkable for a number of reasons, including the fact that tax revenue does not come in at the same rate that payments are due.

"Prioritisation is impossible," said Tony Fratto, who was Deputy Press Secretary for Bush and a spokesperson on economic policy who fought through approximately seven debt limit increases with Congress.

"Is the government really going to be in the position of withholding benefits, salaries, rent and contract payments, in order to pay off Treasury bond-holders? That would be a political catastrophe," Fratto said.

Increased credit risk

Keith Hennessey, Bush's National Economic Council director, said prioritisation was a bad idea that could increase credit risk and said it would be irresponsible.

"Payment prioritisation doesn't stop payments, it just delays them. Then the aggrieved party sues the government, and probably wins, and it turns into a bloody mess," Hennessey, now an economist at Stanford, said in a blog post this week.

Even when the government was operating under a budget surplus, as it did from 1998 through 2001 under President Bill Clinton, the Treasury still had to borrow or issue debt to make its regular payments because its income fluctuates month-to-month.

The department is expected to run out of ways to stave off a default as early as mid-February, and Republican lawmakers say they will refuse to give the Obama administration the votes needed to raise the debt cap unless Democrats agree to spending cuts and changes to federal benefits programs

On 15 February, the government is expected to take in about $9bn in revenues and is required to pay bills amounting to $52bn, according to the think tank the Bipartisan Policy Centre, which analysed Treasury's cash flows.

The Treasury Department has said ensuring that bond investors got paid before others would be a "default by another name."

And in the past, Treasury officials have said the department lacks the formal legal authority to establish priorities to pay obligations, according to the non-partisan Congressional Research Service.

Read more on:    barack obama  |  us
NEXT ON NEWS24X
SHARE:

Read News24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
0 comments
Add your comment
Comment 0 characters remaining
 

Inside News24

 
/News
 

LOL! Best outdoor girl fails

It’s not only guys who have FAIL moments! Here are some of the funniest outdoor fails where girls are the victims!

 
 

Where were you when you last felt alive?

90-year-old's incredible travels
10 facts about swimming you didn't know
Halloween night run
Exciting new zipline for Cape Town!

Jobs in Cape Town [change area]

Property [change area]

Travel - Look, Book, Go!

Magical Massinga

Spend 5 nights at the gorgeous Massinga Beach Lodge in Mozambique and only pay for 4 from R13 220 per person sharing. Includes return flights, accommodation, transfers and romantic turndown. Book now!

Kalahari.com - shop online today

Save up to R2100 on electronics! – As seen in the catalogue

Wishing for tech gadgets this festive? Save up to R2100 on hot tech products at kalahari.com. While stocks last. Shop now!

Toys 4 for the price of 3

Buy 4 toys and get the cheapest FREE! Offer valid while stocks last. Shop now!

Seen something you like in our catalogue?

Find the perfect gift and save up to R5000 – As seen on the catalogue. Hurry and shop now!

Mind blowing deals on electronics!

Save up to 35% on electronics. Offer valid while stocks last. Shop now!

Hot offer: Up to 50% off irons

Save up to 50% on all Philips irons. While stocks last. Shop now!

OLX Free Classifieds [change area]

Samsung Galaxy s4

Mobile, Cell Phones in South Africa, Western Cape, Cape Town. Date October 24

Best bargain in big bay

Real Estate, Houses - Apartments for Sale in South Africa, Western Cape, Cape Town. Date October 25

VW Golf 6, 1.6 Trendline (Excellent condition)

Vehicles, Cars in South Africa, Western Cape, Cape Town. Date October 25

Horoscopes
Aquarius
Aquarius

There may be some tension that is caused through social conflicts -- personal interests versus obligations. You may feel an...read more

There are new stories on the homepage. Click here to see them.
 
English
Afrikaans
isiZulu

Hello 

Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.


Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Settings

Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.








Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.