Lew: Eliminate the ‘dangerous’ debt limit

Treasury Secretary Jack Lew is urging Congress to effectively kill the national debt limit, arguing it now poses too great a risk to remain a policy tool.

Writing in the Harvard Journal on Legislation, Lew argued that the debt limit has become a dangerous tool, allowing lawmakers to risk global economic catastrophe to gain political leverage.

“What once was a deadline that drove debates on the budget has transformed into a nihilistic platform for some in Congress to promote the very real risk of a default to advance narrow partisan agendas,” he wrote.

“We have a broken, outdated system that no longer meets our country’s needs,” he added. “We must change course.”

{mosads}With the nation’s debt cap set to again take effect in March, Lew is making the case that Congress should do away with the decades-old way the nation authorizes new borrowing.

He contended that in prior decades, debates over raising the nation’s debt limit spurred some fierce negotiations over the budget, but the threat of actually defaulting debt were still considered “extreme.”

By his telling, that all changed in 2011, when an influx of conservative lawmakers began pushing an “unprecedented and dangerous” approach of actually suggesting the nation’s borrowing cap should not be raised unless it came with major policy concessions.

“The willingness of Congress, in recent years, to create a real risk of default has helped demonstrate the actual and potential harm that comes from debt limit brinksmanship,” he contended. “An unprecedented default on our obligations could precipitate a financial crisis, wreak havoc on our economy, and, in turn, damage our standing as a nation.”

The Obama administration went through several pitched debt limit battles with congressional Republicans, with the most contentious coming in 2011. That battle, which was resolved with just hours to spare, was dramatic enough to spurred the credit rating agency Standard & Poor’s to issue the first-ever downgrade on the nation’s debt, deciding it was somewhat riskier than the gold standard it once represented.

Eventually, the White House took the hard stance that it would refuse to negotiate on the debt limit at all, calling the matter too important to become a tool for political leverage.

Lew also slammed “reckless proposals” put forward by Republicans in the past, including bills that would direct the government to prioritize certain key payments ahead of others in cases where the nation can no longer borrow to pay its bills. Lew has consistently dismissed such prioritization plans as unworkable and ineffective, warning that markets would still react vehemently to the government failing to pay some of its bills.

Lew stops short of telling Congress exactly how it should handle governmental borrowing. But he makes clear that the current arrangement, in which lawmakers must pass a separate borrowing authorization to cover already authorized spending, is unworkable and dangerous.

“I will never forget sitting in the Oval Office and discussing nightmare scenarios with the President. I hope that my experiences and the experiences of my predecessors can serve as a warning of the danger of coming to the brink of default. Congress should avoid a return to brinksmanship that causes grave risk to our nation,” he said.

Lew’s message is a timely one. The nation’s debt limit was suspended as part of a budget deal at the end of 2015, but again takes effect on March 16. At that point, lawmakers will either need to decide to raise the roughly $20 trillion debt limit, or the incoming Treasury secretary will need to begin shuffling funds around via “extraordinary measures” to remain underneath that limit.