Lew’s Vow Not to Shift on Debt Limit Frustrates RepublicansIan Katz and Chris Strohm
When Treasury Secretary Jacob J. Lew told the Senate Finance Committee last week that the Obama administration would never bargain over raising the nation’s debt limit, it was a declaration the lawmakers had heard before.
Lew, the administration’s point man for pressing Congress to increase the $16.7 trillion debt ceiling, has been making the same case privately on Capitol Hill for months, lawmakers say, as he has publicly in speeches and on Sunday talk shows. His determination to stay on message has frustrated Republicans hungry for a deal.
He’s “an implacable negotiator” who is “ideologically committed to protecting every big-government gain,” Senator Jeff Sessions, an Alabama Republican, said in an interview. Administration officials “can all go and play a round of golf, and they know he’s not going to agree to anything.”
Lew, 58, has led President Barack Obama’s drive to separate the debt ceiling from other issues that are subject to political deal-making, a position that may change as congressional Democrats and Republicans negotiate how to end the impasse and increase the borrowing limit.
The administration is concerned that protracted negotiations on raising the debt limit to pay bills already approved by Congress will undermine the economy and spur investor doubts about U.S. creditworthiness.
“The full faith and credit of the United States is not a bargaining chip,” Lew told the Senate finance panel at the Oct. 10 hearing in which his testimony varied little from the arguments he’s made over the past two months.
Lew, who said the administration is willing to negotiate on “the future direction of fiscal policy,” reiterated that so-called extraordinary measures -- the accounting moves he’s been using since May to stay below the debt limit -- will expire by Oct. 17. That would leave the Treasury with about $30 billion on hand. Expenditures can be as high as $60 billion some days.
Senate leaders yesterday struggled to find a deal to avert a default and end a partial government shutdown that began on Oct. 1. Senate Majority Leader Harry Reid, a Nevada Democrat, said he was having conversations with Minority Leader Mitch McConnell of Kentucky and was confident that Republicans will agree to open the government and raise the debt ceiling. There was little tangible evidence of a breakthrough. Senators plan to reconvene at 2 p.m. today, and the House at noon, with no votes until 6:30 p.m.
Lew’s approach to the debt limit has focused on a few basic ideas. He has scrapped, temporarily, the traditional Treasury secretary role of cheering up financial markets and is making it clear he thinks investors should be worried about the possibility the U.S. won’t make all its payments on time.
“The calm out there,” he said in a discussion with Bloomberg View’s Al Hunt on Sept. 24, “is a bit greater than it should be.”
That comment was “an unusual step for a Treasury secretary,” said Omair Sharif, an economist for RBS Securities in Stamford, Connecticut. “It shows it’s all hands on deck to get pressure on the Republicans to move to raise the debt limit.”
Senator Ron Johnson, a Wisconsin Republican, said at an Oct. 11 Bloomberg breakfast that the administration should try “to calm the markets, not scare them.”
“Responsible leadership wouldn’t be going out there going, ‘There’s going to be catastrophe coming,’” Johnson said, referring to comments by Obama and Lew warning of dire consequences if the U.S. can’t make all its payments.
U.S. stocks retreated today following the biggest three-day advance since January while the yen strengthened and gold rose after American lawmakers failed to agree on raising the debt limit. The Standard & Poor’s 500 Index dropped 0.5 percent to 1,695.33 at 10:31 a.m. in New York while the Stoxx Europe 600 Index reversed earlier declines to trade little changed. The U.S. cash bond market is shut for Columbus Day.
A Treasury spokeswoman declined to comment on Lew’s behalf for this story.
The Treasury secretary has pointed to his time as budget director under both Obama and President Bill Clinton, his work as an aide to former House Speaker Tip O’Neill when he was making deals with President Ronald Reagan, and Obama’s willingness to revise the inflation measure for calculating Social Security benefits as evidence he’s not bound by ideology.
Perhaps the biggest disagreement he has with Republicans is over history and the administration’s refusal to negotiate on the debt limit.
Senators Orrin Hatch of Utah and Rob Portman of Ohio have said deficit-reduction packages over the last 30 years were agreed to within the context of the debt ceiling. By not negotiating, the administration is departing from normal practice, they said.
“He’s hewing to the line,” Hatch said in an Oct. 7 interview. “I’m one who likes Secretary Lew, but to be honest with you he’s been very partisan on all this. He is the most partisan secretary of the Treasury that I’ve seen since I’ve been here.” Hatch became a senator in 1977.
Lew has spoken to or met with at least a half-dozen Republicans in Congress on the debt limit and with the entire Senate Finance Committee in private, according to the Treasury Department. He also attended Obama’s talks with House Republican leaders on Oct. 10 and Senate Republicans on Oct. 11.
At those meetings, he dispenses with small talk and gets “pretty much straight to business,” said Representative James Lankford, an Oklahoma Republican.
Lew told Portman at the Oct. 10 hearing that previous debt-limit increases were tacked onto other agreements and didn’t drive those discussions.
In budget deals reached in the 1980s and 1990s, “neither political party thought that defaulting on our debt was a serious, credible option,” Lew wrote in an Oct. 4 letter to Hatch. The tone has changed since the 2011 debt-limit debate, when some Republicans “argued that default was an acceptable option if they were unable to achieve their legislative objectives,” he said.
Lew sticks to the message and serves as a technical counselor to Obama on the debt limit, said Stephen Myrow, managing director at Washington-based ACG Analytics Inc. and a Treasury official during the George W. Bush administration.
When Obama said at an Oct. 8 press conference that Lew would “make a formal presentation” to the Senate Finance Committee on the question of paying some bills before others, “it was like a CEO turning to his lawyer, his adviser, for the details on what is possible,” Myrow said.
Lew’s consistency, while frustrating for Republicans, has given rank-and-file Democrats resolve to stand firm.
“I always get the sense that he’s determined and committed and strong and directed,” said Representative Carolyn Maloney, a New York Democrat. “I don’t ever feel that he’s frustrated.”
Lew has been entrenched in budget matters for most of his career. In addition to the two stints as budget chief, he was Obama’s chief of staff for a year before becoming Treasury secretary in February. His experience with Congress dates to his time as a legislative aide in the early 1970s and as a domestic policy adviser to O’Neill from 1979 to 1987.
A quarter-century later, he’s at the other end of Pennsylvania Avenue engaged in a battle that is as much about politics as the budget.
He’s giving Republicans a different kind of deadline than the one provided by his predecessor, Timothy F. Geithner, during talks two years ago that ended with Obama signing a debt-limit increase on Aug. 2, 2011, the day the Treasury projected its borrowing authority would run out.
On Aug. 26, Lew said in a letter to House Speaker John Boehner that the U.S. would run out of extraordinary measures and exhaust its borrowing authority by mid-October, leaving it with a cash balance of about $50 billion.
Congress was on recess at the time and there was a discussion within the administration about whether the letter should wait until lawmakers were back in Washington to focus on the issue, according to a Treasury official who requested anonymity because the conversations were private. Lew decided the information should be released as soon as possible and sent it.
A month later, he gave a precise date, Oct. 17, and revised the projected cash to $30 billion.
“He’s trying to be as transparent as possible as to how much room he has,” said G. William Hoagland, a senior vice president at the Bipartisan Policy Center in Washington and a former staff director for the Senate Budget Committee. “If we wake up on Oct. 18 and we only have enough money to pay the interest on the bonds coming due that day and we can’t pay any other bills, he’s going to be able to say ‘Listen guys, I wasn’t kidding.’”
The difference between choosing a deadline with a $30 billion cushion as Lew did and a date for when Treasury will have no cash is like comparing “code red” with “fiscal Armageddon,” Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey, said last month.
Republicans such as Johnson and Senator Pat Toomey of Pennsylvania question that the U.S. will default if the debt ceiling isn’t raised by Oct. 17. The government, they say, brings in much more revenue than it has to pay out in interest on its debt.
“There’s no reason we should be talking about defaulting on our debt,” Johnson said. “It’s a cash-management problem that should be handled easily by anybody with a brain in their head who knows how to manage cash.”
As Lew’s deadline nears, he is facing questions about setting priorities on paying bills and whether the U.S. can avoid default by making some payments and not others.
He dismisses suggestions that setting priorities is a plausible substitute for raising the debt limit.
“It’s just saying that we will default on some subset of our obligations,” Lew told the Finance Committee. “Prioritization is just default by another name.”