WASHINGTON -- Documents subpoenaed by the House Financial Services Committee reveal the Obama Administration is not only capable of prioritizing payments in case the nation’s borrowing authority is not raised, it has run “tabletop exercises” to prepare for such a contingency – contradicting earlier public statements from Treasury officials.
Made public for the first time, records turned over to the Committee in response to the subpoena show the Federal Reserve Bank of New York previously made plans to prioritize Social Security, veterans’ benefits, and principal and interest payments on the debt over other government obligations.
The Administration, however, directed the New York Fed to withhold this information from the Committee because “Treasury wants to maximize pressure on Congress by limiting communications about contingency planning,” according to a previously undisclosed internal email of the New York Fed.
Efforts by the Obama Administration to keep its contingency planning a secret were met with objections from officials at the Federal Reserve and the New York Fed, who described the approach in an email as “crazy, counter-productive, and add[ing] risk to an already risky situation.”
The Committee began its investigation of the Obama Administration’s contingency planning in late 2013. The Treasury Department and New York Fed failed to comply with requests for information and stonewalled the investigation, forcing the Committee to issue a subpoena in May 2015. The Committee will discuss the nation’s unsustainable federal spending and the debt limit, in addition to the findings of the report, at an Oversight and Investigations Subcommittee hearing on Feb. 2.
“In light of what the internal New York Fed documents indicate, it is now obvious why Treasury fought so hard to prevent their production to the Committee: Treasury knew that the documents would expose the disingenuousness of its public statements and the political gamesmanship at the heart” of the Administration’s “no-negotiation” strategy on the debt ceiling, the Committee report states.
Documents Reveal Administration’s “Cynical Attempt to Create a Crisis”
“These internal documents show the Obama Administration took the nation’s creditworthiness and economy hostage in a cynical attempt to create a crisis so the President could get what he wanted during negotiations over the debt ceiling,” said Committee Chairman Jeb Hensarling (R-TX). “The Administration owes it to the American people to be honest and transparent about its debt ceiling contingency plans.”
Oversight and Investigations Subcommittee Chairman Sean Duffy (R-WI) added: "This report shows President Obama manufactured a crisis to put politics ahead of economic stability. Shame on him. Rather than being honest, the Administration deliberately misled Congress and the American people about their ability to honor our commitments to our nation’s veterans and seniors."
Specifically, documents uncovered by the Committee reveal that:
- Treasury is capable of prioritizing principal and interest payments on the debt and the New York Fed has been running “tabletop” debt ceiling exercises regarding these sorts of contingencies since at least March 2011.
- Treasury has sought to withhold from Congress and the American people information about the Administration’s contingency plans, for the purpose of pressuring Congress to acquiesce to the Administration’s position that any increase in the debt ceiling not be accompanied by spending constraints.
- Contrary to Treasury Secretary Jacob Lew’s testimony to Congress that the Administration has never made any decision to prioritize debt payments, internal New York Fed documents reveal that Treasury was in fact planning to prioritize payments during the debt limit impasses of 2013.
- Internal New York Fed records reveal that both New York Fed and Federal Reserve Board employees objected to Treasury’s efforts to conceal the Administration’s contingency plans because concealing this vital information added unnecessary risk to an already volatile situation.
- Treasury appears to have actively obstructed the Committee’s investigation of this matter by directing the New York Fed to withhold information from the Committee for approximately two years.