Treasury: Earlier, Bigger Debt Crisis Threatens Military Pay

With Congress still wrestling with how to avoid a government shutdown on Tuesday, the Treasury Department issued another piece of bad fiscal news Wednesday, saying that the debt ceiling crisis will arrive sooner and be worse than previous estimates.

By no later than Oct. 17, the nation will have just $30 billion in cash to pay bills, Treasury Secretary Jack Lew says in a letter to congressional leaders. This is about $20 billion less cash on hand than expected, and the financial crisis involving the nation’s $16.7 billion debt limit comes about two weeks earlier than expected.

With the $30 billion in cash and whatever revenue the government takes in, there would not be enough money to pay bills, forcing the Treasury to set priorities.

“This amount would be far short of net expenditures on certain days, which can be as high as $60 billion,” Lew warned. “If we have insufficient cash on hand, it would be impossible for the United States of America to meet all of its obligations for the first time in our history.”

The House of Representatives approved a plan last week that calls for creditors to receive top priority for payment in order to preserve the nation’s credit standing, with the military and federal civilian payroll, veterans’ benefits, Social Security, Medicare and Medicaid payments to doctors, food stamps and benefits ranking lower.

Lew called this “ill advised.”

“Any plan to prioritize some payments over others is simply default by another name,” he said.

“The United States should never have to choose, for example, whether to pay Social Security to seniors, pay benefits to our veterans, or make payments to state and local jurisdictions and health care providers under Medicare and Medicaid,” he said. “There is no way of knowing the damage any prioritization plan would have on our economy and financial markets.”

One possibility for dealing with limited cash would be to provide partial payments to beneficiaries, but Lew did not discuss the option in his letter.

Like the government shutdown threat, service members would continue to accrue pay even if the government is unable to pay them and would receive full payment when money becomes available.