Fox Tells Half The Story On Debt Ceiling Fight
Fox News figures downplayed concerns about the debt ceiling, pointing to the government's ability to make interest payments on its debt even in the event of a shutdown. But the process used to focus payments on the debt, known as prioritization, could have disastrous consequences for the government and the economy, and may not be permitted by the limits on the Treasury's authority.
GOP Suggests "Prioritization" To Maintain Debt Payments If Debt Ceiling Is Not Raised
Wash. Post: "Prioritization" Would Place Payments On Debt Interest Above Other Government Debts. A January 14 Washington Post blog post explained that the GOP has proposed using tax receipts to pay interest on the national debt over all other government obligations if the debt ceiling is not raised:
Unless Congress intervenes, the U.S. government will bump against the debt ceiling sometime in late February. At that point, the government will only have enough tax revenue to pay about 60 percent of its bills -- and it won't be able to borrow more money to make up the difference. So what happens then?
For some Republicans, the answer is simple: The United States should keep funding the crucial stuff and let the rest of the government shut down. "We should pass a bill out of the House," said Sen. Pat Toomey (R-Pa.), "saying there will be certain priorities attached to certain things, namely payment of debt services and payment of our military."
This option is known as "prioritization." It's the idea that the government can selectively pay some of its bills so that the nation doesn't default on its debt payments -- the doomsday scenario. [Wonkblog, The Washington Post, 1/14/13 ]
Fox Downplays Debt Ceiling Consequences By Focusing On Debt Payments
Fox's Varney: Debt Ceiling Warning "Belies The Fact That We Have Never, And Will Never, Default." On the January 15 edition of Fox News' America's Newsroom, Fox Business host Stuart Varney criticized President Obama for warning about the consequences of failure to raise the debt ceiling, claiming, "All this talk about being a deadbeat nation, that belies the fact that we have never, and will never, default on our obligations":
VARNEY: We're not going to default, period. We are not going to default. Default means that you do not service your debt. You don't pay the interest on your debt. Well we have $2.5 trillion dollars coming into the treasury every year in tax revenue. We can use that tax revenue to pay the interest on our debt. Therefore, we will not default.
All this talk about being a deadbeat nation, that belies the fact that we have never, and will never default on our obligations. The obligation being to pay the interest on the debt. We are not a deadbeat nation and we are not going to default, period. [Fox News, America's Newsroom, 1/15/13 , via Media Matters]
Fox's Doocy Downplays Debt Ceiling By Hyping Plan To Prioritize Debt Payments. On Fox & Friends, co-host Steve Doocy said, "We can only default if the U.S. Treasury says we're going to stop paying the interest on the debt." and he promoted Sen. Toomey's legislation to focus Treasury payments on debt payments:
DOOCY: He also said, a couple of times, that the Republicans want our country to -- essentially want our country to default on the debt, which is -- you got to understand this, so many people have been misusing this term. We can only default if the U.S. Treasury says we're going to stop paying the interest on the debt. Nobody is suggesting that. And in fact, Pat Toomey has got a plan to prioritize things where first thing we do in a situation like this is meet our obligation, pay off our debt service and then pay Social Security, Medicaid, Medicare, and right down the priority chain. [Fox News, Fox & Friends, 1/15/13]
Fox's Baier: If Debt Ceiling Is Not Lifted, "You Wouldn't Be In Default To What The Country Owes." On the January 14 edition of Fox News' Happening Now, Fox News host Bret Baier responded to Obama's warnings during a press conference earlier that day by saying that if the debt ceiling was not raised, the Treasury would still "have enough money to pay what the nation owes first":
BAIER: Obviously the president started this with a statement about it, saying how detrimental he believed it would be for Republicans to push up against the debt ceiling and he didn't want to negotiate on it, listing out all the negative things that could happen if, in his words, you went over that line, saying that Social Security checks and veterans' checks will be delayed. That the full, faith and credit of the United States would be at risk.
Understand that, as we have explained here many times, that Treasury brings in receipts, tax receipts every day. You would be able to have enough money to pay what the nation owes first. So you wouldn't be in default, to what the country owes. And as far as what is going out, what would be paid it would be a choice, a priority list for Treasury to pay. [Fox News, Happening Now, 1/14/13]
Right-Wing Media Ignore The Harmful Consequences Of Failure To Meet Other Obligations
Wash. Post: U.S. Credit Rating Could Still Be Downgraded Even If Debt Payments Are Made. In The Washington Post's PostPartisan blog, Jonathan Capehart pointed out that even if the Treasury were able to continue making payments on the national debt, the U.S. credit rating could still be downgraded:
A Wall Street Journal story from July 2011 reported that a managing director from Standard and Poor's told Senate Democrats and officials from the U.S. Chamber of Commerce and the financial services industry that such a "prioritization" scheme could lead to a downgrade. Turns out the bond rating agency wouldn't look too kindly on the United States stiffing veterans and the elderly in order to meet interest payments.
Thanks to Republican insistence that raising the debt ceiling to pay for the nation's past spending be linked to future spending cuts, we might face those ugly choices again. President Obama has made it clear publicly and privately that such a link is a nonstarter with him. And he's right. If Toomey and the Republicans want to ignore the warnings from Treasury and the financial sector about playing chicken with the full faith and credit of the United States then they better be prepared to shoulder the responsibility for wrecking the global economy. [PostPartisan, The Washington Post, 1/7/13 ]
Geithner: Prioritization Is "Radical And Deeply Irresponsible" And Could Trigger Recession. In an open letter to Congress, Treasury Secretary Tim Geithner called prioritization "a radical and deeply irresponsible departure from the commitments by Presidents of both parties":
I have expressed my concerns about this idea before, but I will restate them to be clear: this "prioritization" proposal advocates a radical and deeply irresponsible departure from the commitments by Presidents of both parties, throughout American history, to honor all of the commitments our Nation has made.
The statutory debt limit is not and never has been, as you argue, a "budget enforcement mechanism" that can be used to implement spending reductions by selectively defaulting on obligations previously approved by Congress. Our Constitution provides that "No Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law." When Congress determines that certain commitments in the law should be altered or terminated, those decisions must be effectuated through enactment of legislation, not by attempting to coerce the Treasury to renege on existing legal commitments.
Even if the idea of "prioritization" were not so unwise, it would not be a mere exercise in "belt tightening," as you suggest. The United States in now required to borrow approximately 40 cents for every dollar of expenditures. Your proposal would require cutting roughly 40 percent of all government payments. These deep cuts would be felt by all Americans, and they would risk throwing the economy back into recession. [Timothy Geithner, 6/29/11 , via The Wall Street Journal]
Laurence Tribe: Prioritization Would "Be A Disaster In Practice" And "Catastrophic" For The Economy. In a post on the New York Times' Room for Debate blog, Harvard Law School professor of constitutional law Laurence Tribe warned that even if the government met its debt obligations, cuts to other programs would be "catastrophic for our recovering economy":
A second approach calls for the Treasury to "prioritize" the payment of bondholders when allocating incoming tax revenues. But prioritization comes at a cost: the very reason we need to borrow is that incoming revenues don't cover all our spending. So prioritization requires skipping other payments mandated by law -- perhaps payments on Social Security, Medicare and defense.
But this approach, too, would be a disaster in practice. Stopping government employees' pay, retirees' Social Security checks or seniors' Medicare reimbursements would bring chaos to the lives of millions of Americans - and would be catastrophic for our recovering economy. [The New York Times, 1/13/13 ]
Treasury Is Uncertain It Has The Authority To Prioritize Debt Payments
Fitch Ratings: "It Is Not Assured That The Treasury Would Or Legally Could Prioritize Debt Service." A January 15 Los Angeles Times article quoted credit rating agency Fitch Ratings as expressing doubt that the Treasury has the authority to prioritize debt payments:
Fitch echoed warnings by the Obama administration that hitting the debt ceiling would lead to a default. Some Republicans have said that the government could prioritize payments to investors to avoid such a default, but the Treasury has said it does not have that authority.
"With no legal authorization for net debt issuance, the Treasury would be forced to immediately eliminate the deficit -- a fiscal contraction twice as great as the recently avoided 'fiscal cliff' -- by delaying payments on commitments as they fall due," Fitch said.
"It is not assured that the Treasury would or legally could prioritize debt service over its myriad of other obligations, including Social Security payments, tax rebates and payments to contractors and employees," Fitch said. [Los Angeles Times, 1/15/13 ]
NY Times: Officials Claim Treasury Lacks Authority To Prioritize Payments. A July 27, 2011, New York Times article noted that officials have questioned whether the Treasury has the legal authority to prioritize payments and may be required to pay bills as they come due:
Officials have said repeatedly that Treasury does not have the legal authority to pay bills based on political, moral or economic considerations. It cannot, for instance, set aside invoices from weapons companies to preserve money for children's programs.
The implication is that the government will need to pay bills in the order that they come due. President Obama has warned as a result that the government "cannot guarantee" payments of Social Security benefits or other popular programs. Officials also have disputed the assertion of some Republicans that the government could prioritize interest payments. [The New York Times, 7/27/11 ]