Trump may have to use Obama's secret debt plan

[TexasTowelie]

WASHINGTON -- Deep within the Treasury Department sits a once-secret plan written by the Obama administration that could lead to the first-ever default on U.S. debt. Bond traders are worried that Donald Trump's Treasury secretary may have to use it.

The U.S. government will reach its statutory limit on borrowing some time in October, the Congressional Budget Office estimates. The Trump administration has asked Congress to raise the ceiling before then, but it is running into the same complications the Obama White House encountered: lawmakers, mostly Republicans, who want to use the debt limit as leverage for controversial policy changes.

Treasury Secretary Steven Mnuchin has said there are "plans and backup plans" to keep the government solvent through September. Bond traders suspect he is referring to preparations made in 2011 in case the Obama administration had to prioritize payments on government securities over other obligations. The Treasury chief got fresh hope that Congress may raise the debt limit before leaving for its August recess after Senate Majority Leader Mitch McConnell delayed the break by two weeks.

When the nation almost breached its debt ceiling six years ago, the Federal Reserve and Treasury drew up contingency plans that were kept secret until January, when transcripts of an Aug. 1, 2011 conference call at the central bank were released after a customary five-year lag.

Read more here: http://www.sacbee.com/news/business/article161571323.html

[Igel]

1. There are a lot of plans.

It used to be that we knew that even before the statutory limit was reached monies would be discretely and temporarily transferred from accounts with $ to accounts that needed them. That $1 million in one account that wasn't spent was taken as needed, and could easily be restored after the fact.

Ahead of time, non-essential services and purchasing would be curtailed.

As things become less certain and the deadline approached, payments would be delayed to non-essential vendors. This wasn't default, it was just letting accounts run past the usual time for payment.

The rhetoric was "government shut down," but there were ways to extend the deadline. But the rhetoric went from a political ploy to threaten shut down to the decision to not take steps to extend the deadline. What had been done was suddenly "unconstitutional" and impossible. If you shut things down and make people suffer while getting blame shifted just right--that last bit was crucial--you got political points and increased your political power. Otherwise there'd be the humiliation of actually collaborating and compromising.

The first shut down really was all but required. What could be kept going was kept going, essential services last to go. Later it became a ploy, with essential services threatened up front, and the rhetoric such that if there was a shutdown and essential services didn't stop it would be a huge humiliation. Politics over people.