Lew: U.S. Shouldn't Repeat Budget Standoff of 2011

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Sept. 24 (Bloomberg) -- U.S. Treasury Secretary Jacob J. Lew speaks about the budget deficit and the possibility of a U.S. default. He speaks at the Bloomberg Markets Top 50 Summit. (Source: Bloomberg)

About the possibility of default, which seems less remote than it has even in the last couple of months.

You have said revenues are coming a little slower than expected.

What do you think is the deadline for when congress has to produce a deal to avoid a default?

In the middle of october we are going to reach the end of our ability to juggle all these extraordinary measures.

We actually hit the debt limit in may, and since may we have been managing by doing things that are now accepted, but were once considered extraordinary.

They come to an inch.

We run out of devices.

In the middle of october we are left with just cash, no ability to go out and borrow, unless congress acts.

Peck so basically three weeks from today, they have to do something or we are in that situation.

When we are at the end of our ability tomorrow, we will have some cash.

A couple of weeks ago our estimate was about $50 billion that we expected.

Because things have come in a little bit slower, is not something that would matter if we were not in this ridiculous position of looking to see how long we can operate on the cash that is left.

I'm not going to guess on the specific number.

I know this is virgin territory, but give us a sense.

You have to start contingency planning.

There was a report last year that suggested the least harmful option if we face this crisis would be a delayed payment regime where you delay payments until you have the money and then you pay them.

Is that the basic course you will follow?

No treasury secretary and no president ever got to a point where we had the -- ran out of the ability to borrow.

It is uncharted territory.

We never had to cross the line.

It is not a line we should cross.

There is no plan after we run out of borrowing authority that will give us the ability to meet all the obligations of the united states.

Since 1789, we have kept every commitment this country has made.

It is why we have the sterling credit we have had from the beginning.

I think you can come up with all kinds of scenarios of what we do when we don't have enough money to pay all the bills.

Is delayed payment the least bad?

There is no good alternative.

If we are in a position where we cannot pay all the bills, if you don't pay social security and millions of people don't get their check on time, if you don't pay medicare and medicaid to hospitals and providers who are counting on the cash flow that comes from the rocksolid assurance that the united states government pays its bills, if veterans don't get their disability payments, there is no solution that doesn't create the problem that there is going to be this gap where the united states of america, for the first time in its history, will have not paid the bills when they were due.

Few would disagree that it would be a bad situation.

Republicans say fine, but when the president says he will not negotiate, and they say the public is on their side, they don't want the debt ceiling increase, and the president negotiated a couple of years ago.

Of course he will negotiate.

It is important to go back and remember history, not the revisionist history.

2011 was the first time ever that there was a thread of default, when they were first advocating default would be better than a reasonable compromise, or meeting at some point in the middle.

People point to all kinds of dates.

In 1990, there was a budget agreement, but it was not that anyone threaten default.

It was then considered a terrible thing, sequestration.

In 1997, the balanced budget agreement was reached and the debt limit was tacked onto it.

We did not have a debt limit until 1917. up until then, when we had to borrow, congress approved each borrowing one by one.

At a time of war, it was a reformed to set a limit so that congress would not have to vote each time there was a debt issue.

It was a ministerial kind of action.

All the decisions about what we spend as a government are made well before the debt limit.

I understand the history, but why would the president be unwilling to negotiate, if they have a temporary budget deal and they kicked the can down the road, why be unwilling to negotiate over some particulars when he was willing to negotiate two years ago.

In 2011, it was not a good experience.

We drove right to the brink of default.

We saw our credit rating downgraded.

We saw confidence, both consumer and business confidence, fall.

We saw a real damage to the u.s. economy, even though we ended up reaching an agreement at the 11th hour.

We shouldn't do that again.

What happened then, for the first time, was that one side in the political debates that we are willing to default unless we get our way.

That is not a tactic that can be accepted.

Ex under no circumstances do you negotiate.

Congress has to extend the debt limit.

This president and future presidents cannot be in a position where 50 or 100 members of the house may demand that the risk of default.

That is not an acceptable way to work out our differences.

In general, the president, more than almost anyone i've ever known, where you can reach an accommodation where all parties can have dignity and an agreement where they get some of what they want done and it doesn't offend either side grievously.

He is willing to negotiate on fiscal policy.

But he won't negotiate on this.

Is that unequivocal on or you are saying probably not?

I'm trying to be as unequivocal as i can.

The markets don't seem to be

This text has been automatically generated. It may not be 100% accurate.


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