By Mark Melin. Originally published at ValueWalk.
Looking at Greece it is easy for those in the most prosperous nations in the world to assume such misadventures in government debt could never traverse to domestic shores. But perhaps an alien visiting the planet and just looking at a recent government letter and the history of U.S. discourse over government debt might disagree.
Jack Lew says this fall Congress must act on debt
With a dispassionate, mathematical logic, the alien might consider U.S. Treasury Secretary Jack Lew’s July 29 letter noting that the government has taken “extraordinary measures… to avoid default.”
Those “extraordinary measures” keeping the government afloat might be considered equal to finding coins in the couch. As he outlined in the letter, measures include a the suspension of debt to pay the Civil Service Retirement and Disability Fund as well as suspension of the daily reinvestment of Treasury securities held by the Government Securities Investment Fund of the Federal Employees’ Retirement System Thrift Savings Plan.
To an alien, this might seem odd. “How is it that a government can authorize spending but not authorize payments,” the alien might say, echoing the words of Lew as he spoke on a CNNMoney interview.
Jack Lew: The U.S. stands alone in not paying its bills through consistent debt ceiling reauthorization fights
“The U.S. has to be a leader in the world,” Lew said. “We can’t create a sense of anxiety that we won’t pay our bills.” Lew notes the concept of a debt ceiling is not common around the world, as most governments authorize government spending to coincide with payment of those obligations.
“We believe that the measures will not be exhausted before late October, and it is likely that they will last for at least a brief additional period of time,” Lew wrote in the letter.
The debt ceiling limit has typically touched on a third rail topic of spiraling U.S. government debt and unfunded liabilities for retiring seniors. There is a specific demographic bubble being created by the “baby boomer” generation that is of concern. Currently the U.S. government spends $2.40 for every senior over 65 years old but just $1 for every child.
Some have viewed the debt ceiling as a method of keeping a lid on spending, an unpopular measure that weak-kneed politicians on both sides of the political spectrum have refused to address. In both his letter and subsequent interview, Lew outlined how the U.S. Treasury has engaged in “extraordinary measures to continue to finance the government on a temporary basis” while holding off the debt collector until the Fall, when he says Congress must act to authorize payments. The exact point when Congress will be required to act is unknown due to unpredictable revenue flows, but when that point comes Congress should dispense with the brinkmanship and keep the government afloat, Lew said.
Read the full letter here.
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