U.S. Treasury Secretary Jack Lew told attendees at a meeting of the Economic Club of Washington, D.C. last week that calls to hold off on raising the debt ceiling are “misguided.”
“For one, it is not possible for the U.S. Treasury to know with precision when that moment [of cash depletion] will be because outgoing payments and incoming receipts vary significantly each day,” Lew said. “Operating on a small cash balance creates the real danger that on a day that we anticipate having a positive cash balance we will actually have a negative one.”
Lew said the country also relies on international investors to hold U.S. bonds, adding that if bondholders chose to be repaid over the continued rollover of their investments, the Treasury’s cash balance could be completely depleted.
“The point is, trying to time a debt limit increase to the last minute could be very dangerous,” Lew said. “Make no mistake: If Congress does not act and the U.S. suddenly cannot pay its bills, the repercussions could be serious. The impact on families and businesses could be significant. Investors losing confidence in the full faith and credit of the United States could cause damage to our economy.”
Lew said no “credible economist or business leader thinks” that defaulting on the country’s debt is “good for job creation or economic growth.”
“Those in Congress who think default is an option claim that it is possible to protect our economy by simply paying only the interest on our debts, while stopping or delaying payments on a number of our other legal commitments,” Lew said. “There is no way of knowing the irrevocable damage such an approach would have on our economy and financial markets. As administrations of both political parties have previously determined: these ‘prioritization’ proposals are unworkable. They represent an irresponsible retreat from a core American value: Since 1789, regardless of party, Presidents and Congress have always honored all of our Commitments.”