WASHINGTON – The Oversight and Investigations Subcommittee held a hearing today focused on its investigation that reveals the Obama Administration misled Congress and the public about its ability to prioritize payments during negotiations over the nation’s debt ceiling.
While Administration officials publicly claimed prioritizing payments “is unworkable” and that the Administration had never made a decision to prioritize payments, documents subpoenaed by the Financial Services Committee show Treasury and the Federal Reserve were planning to prioritize payments in the event the debt ceiling was reached. The Federal Reserve Bank of New York even ran “tabletop exercises” to prepare for that likelihood.
Those subpoenaed documents also reveal Treasury worked to deliberately keep Congress and the public in the dark about its debt ceiling plans. Treasury directed the New York Fed not to answer congressional inquiries because Treasury knew the answers would expose the dishonesty of the Administration’s public statements.
Federal Reserve officials objected to Treasury’s efforts to conceal the contingency plans from Congress, calling the Administration’s approach “crazy, counter-productive and add[ing] risk to an already risky situation.”
"As Americans and people all over the world watched this political fight play out on the nightly news, Administration officials repeatedly told the public that chaos would cripple the global economy if the debt limit wasn’t raised.They deliberately choseto hide the fact that the Treasury and New York Fed could prioritize payments, creating greater risk and uncertainty for the markets. The Administration also chose to evade the scrutiny of the American people’s elected representatives, including my colleagues on this Committee, by hiding the truth about its ability to pay our nation’s seniors and veterans. Our nation’s creditworthiness should not be held hostage for the Administration’s lack of trustworthiness," said Rep. Sean Duffy (R-WI), the subcommittee’s chairman.
Key Takeaways from the Hearing:
- Under no circumstances should the nation default on its sovereign debt. As the Committee’s investigation reveals, the Administration is capable of prioritizing principal and interest payments on the debt to preserve the creditworthiness of the United States. Accordingly, it would be irresponsible for the Administration not to do so in the even the debt ceiling was reached.
- Despite the Obama Administration issuing a series of public statements casting doubt on its ability and willingness to prioritize payments, internal documents of the Federal Reserve Bank of New York show that the Administration was planning to prioritize these payments in the event the debt ceiling was reached.
- Treasury withheld the Obama Administration’s debt ceiling contingency plans in order “to maximize pressure on Congress” to submit to its “no negotiation” posture on the debt ceiling.
- America is on a collision course with a fiscal crisis unless Congress and the president work together to get government spending under control. Under President Obama, the nation has gone roughly $8 trillion deeper into debt. The nation’s debt currently stands at more than $18 trillion. According to the Congressional Budget Office, the debt will continue to rise as the budget deficit is expected to increase every year for the next decade.
Topline Quotes from Witnesses:
“Unfortunately, as the debt grows, the interest payments on that debt will grow as well. If the United States does not change course, interest on the debt will end up as one of its biggest budget items. Our unfunded liabilities keep going up, too. The net present value of the promises made to the American people for which the United States does not have the money to pay is roughly $75.5 trillion, according to the Treasury Department…To be sure, default should not be an option on the table. However, raising the debt ceiling without a commitment to improve our long-term debt problem has adverse consequences.” – Veronique de Rugy, Senior Research Fellow, Mercatus Center at George Mason University
“Several economists, employing different methods, have arrived at the same conclusion: high levels of public debt are correlated with lower levels of economic growth. While there is no definite threshold, public debt levels at, or nearing, the size of an industrialized country’s economy are more robustly correlated with lower levels of growth.” – Romina Boccia, Deputy Director of the Thomas A. Roe Institute for Economic Studies and Grover M. Hermann Research Fellow at the Heritage Foundation.