Andrew Roth - September 15th, 2011
CLUB WEBSITE USERS: The "Login with Facebook" button on the Club’s website has been buggy lately. Our website guy says that something has changed on Facebook’s end to cause this problem. While he tries to fix it, you might have to click on the button twice for it to work.
Barney Keller - July 28th, 2011
Remember when Tim Geithner called Senator Pat Toomey’s Full Faith and Credit Act “Unworkable”? Looks like it’s workable now…
The Wall Street Journal
By Damian Paletta
July 28, 2011
The Treasury Department will detail how it will handle the government’s 100 million monthly payments if Congress doesn’t raise the federal debt ceiling, pulling back the curtain on a closely held plan that could have dramatic consequences for the economy, the U.S. credit rating and America’s political standing.
The Obama administration hopes such decisions—who gets paid and who doesn’t—can be avoided if a deal to raise the borrowing limit by Aug. 2 is reached, but time is running out. White House officials still haven’t decided when to release the plan and could reverse course if there is progress in the debt talks.
If market turmoil worsens this week, however, the administration could unveil its intentions in the next few days. Treasury is expected to say, among other things, that it would have to scale back debt auctions if the ceiling isn’t raised, people familiar with the matter said. But officials wouldn’t provide any details of its plans.
The Federal Reserve is expected to play a key role in any plan Treasury might activate, but the central bank has warned it doesn’t have special tools to rescue the government. The Fed could instead be relied on to try to calm financial markets by making sure banks have enough cash to keep operating.
Wall Street officials believe Treasury will restructure the way it pays bills so that all bondholders, including foreign governments such as China, are given priority, so that the country doesn’t default on its debt obligations—something even Greece has been able to manage.
Terry Belton, global head of fixed-income strategy at J.P. Morgan Chase & Co., said he believed there is “virtually a zero chance” that a bond default will occur, even if the debt ceiling is not raised by Aug. 2.
“The Treasury has other things available to them that are all quite disruptive but are better than missing an interest payment,” he said. Paying bondholders before Social Security recipients, for example, would likely spark political outrage and could lead to lawsuits and market disruption, including a potential downgrade of U.S. debt by credit-ratings firms.
The administration is under increasing pressure from bondholders, senior citizens, lawmakers, and others to say how it will prioritize payments. Detailing its plans could be a move by the Treasury to stem growing uncertainty in financial markets about what could happen next week, but it could also open it up to political second guessing and might spark the crisis it is designed to avoid.
Federal regulators will soon give banks new guidelines for how to operate if the debt ceiling isn’t raised and could ask them to work with customers to avoid overdraft fees if certain federal benefits are suspended.
The administration believes it will lose the ability to borrow more money if the debt ceiling isn’t raised, and the Treasury is expected to radically contract its payments after Aug. 2 to conserve cash for as long as possible. The Bipartisan Policy Center, a Washington think tank, estimates the Treasury will run a deficit of about $130 billion in August and likely won’t have the cash to cover all of its obligations.
Top administration officials have met for weeks to hash out plans to operate the government after Aug. 2, but they haven’t disclosed any of their strategies. Details have been circulated only among a close-knit group of officials, including President Barack Obama, Treasury Secretary Timothy Geithner, and a group of Geithner confidantes at the Treasury Department.
Two key lieutenants are Mary Miller and Matthew Rutherford, both experts in debt markets. Mr. Rutherford has been a close adviser to Mr. Geithner since they worked together at the Federal Reserve Bank of New York. Ms. Miller is a financial-market expert who spent 26 years at T. Rowe Price Group Inc.
Former administration officials say there is no simple answer for how Mr. Geithner’s team might navigate such a situation, and that prioritizing some government payments over others would be a technical and logistical nightmare. Many payments are computerized and it isn’t clear that systems could be reprogrammed in time.
In recent days, administration officials have described decisions that they could have to make after Aug. 2 as “unthinkable.”
“So what do you say? Who do you pay? That’s an impossible situation that this country has never faced, and should never face if Congress does what it was elected to do and does its job,” said White House spokesman Jay Carney.
Sen. Orrin Hatch of Utah, the ranking Republican on the Senate Finance Committee, asked Mr. Geithner to specify by 5 p.m. Thursday what plans Treasury had to pay its bills if the ceiling isn’t raised.
He also asked the Treasury to give details of how much money it expected to bring in and spend between the end of July and the end of August—something it hasn’t done.