Lew Says Failing to Raise Debt Limit Would Be ‘Disastrous’
U.S. Treasury Secretary Jacob J. Lew said a failure by Congress to raise the $16.7 trillion debt limit would “have disastrous effects for our nation” and could put at risk payments to Social Security recipients and veterans.
“Even a delay of a necessary increase in the debt limit can bring harmful consequences,” Lew said in comments prepared for a speech today at the Computer History Museum in Mountain View, California. “If cash on hand were to be depleted, all payments across the government -- including Social Security and payments to our military and veterans -- would be at risk.”
The Treasury Department has said it probably will be able to finance government operations by using special accounting measures until after Congress returns Sept. 9 from its recess. The Bipartisan Policy Center, a nonprofit research group, has estimated that the U.S. will reach the point where it is unable to pay its bills sometime between mid-October and mid-November unless Congress increases the limit.
Lew quoted former President Ronald Reagan as saying, “the full consequences of a default -- or even the serious prospect of default -- by the United States are impossible to predict and awesome to contemplate.”
In August 2011, Congress agreed after months of haggling to increase the debt limit on the day the government’s ability to borrow was to run out.
Standard & Poor’s, which downgraded the U.S. one step to AA+ three days later, changed its outlook in June of this year to “stable” from “negative.”
Though the 2011 downgrade by S&P, the world’s largest credit rater, contributed to a global stock-market slump, U.S. government debt lost none of its attraction for investors. Yields on Treasury securities dropped to record lows rather than going higher after the downgrade. Yields on 10-year Treasuries dropped 0.74 percentage point in the seven weeks following the downgrade to a then-record 1.67 percent.
In his remarks, Lew also said that “unemployment remains stubbornly high, while too many people are still struggling to re-enter the workforce.” His appearance today was hosted by the Commonwealth Club of California.
Lew earlier today toured an AT&T Inc. foundry in Palo Alto, California, and was to meet at Facebook Inc., headquarters in Menlo Park with Facebook Chief Operating Officer Sheryl Sandberg and other business executives.
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