- (Photo: Reuters / Yuri Gripas)
Treasury Secretary Timothy Geithner has said that the debt ceiling needs to be raised by August 2 to avoid defaulting on bills that will come due on August 3. Some experts now say that deadline may be later.
The United States government hit its debt ceiling on May 16. Since that time, Geithner has been using what he calls "extraordinary measures" to continue borrowing money to pay the nation's bills. Geithner estimated that those extraordinary measures would only hold out until August 2.
August 2 is the date, therefore, that Geithner has run out of “extraordinary measures” to borrow more money, but the Treasury will likely still be able to pay its August 3 bills with cash on hand and tax revenue coming into the treasury, according to experts.
If Congress does not raise the debt limit, the date that the government will first have a bill that it cannot pay will likely be sometime between August 8 and August 15. Stone & McCarthy Research Associates estimates August 15; Barclays Capital estimates August 10; and the Bipartisan Policy Center estimates August 8 or 9.
On August 3, the U.S. government will have $32 billion in bills due. Most of that, $23 billion, is for Social Security payments. After that, the government will have daily bills every weekday ranging between $9 billion and $19 billion until August 15.
The U.S. government has a large $41 billion bill due on August 15, mostly from the $29 billion interest on federal debt due that day. No experts expect the Treasury Department to get over this hump if the debt ceiling is not raised.
If that point were reached, some who are expecting a government check would not get them. The bondholders would come first, so everyone expects them to get paid. Those who would not get paid, therefore, could be college students expecting Pell Grants, contractors who sold supplies to the military, government employees expecting their paychecks, doctors who provided services to Medicare or Medicaid patients, or those waiting for a tax refund from the I.R.S., just to name a few.
How will the Treasury prioritize who gets paid first? That question, it turns out, is difficult to answer. Sec. Geithner has, so far, not answered that question. There are bills in both houses of Congress that would direct the Treasury Department on how to prioritize payments, but neither bill has been voted on.
Jay Powell, of the Bipartisan Policy Center, thinks that the executive branch, including the President and the Treasury Department, does not have any independent authority to prioritize payments because only Congress has that authority. If that is the case, after bondholders are paid, bills would simply be paid in the order they are received.
On the web: http://www.montrealgazette.com/business/able+bills+beyond+debt+ceiling+deadline/5175290/story.html http://www.bipartisanpolicy.org/library/staff-paper/debt-limit-analysis