Treasury Secretary Jack Lew warned senators Thursday morning about the potential economic costs if the U.S. should default on its debt.
"If Congress fails to meet its responsibility, it could be deeply damaging to the financial markets, the ongoing economic recovery, and the jobs and savings of millions of Americans," he told the Senate Finance Committee in prepared remarks. "I have a responsibility to be transparent with the American people about these risks. And I think it would be a grave mistake to discount or dismiss them."
The hearing came as the nation hurtles ever closer to running out of borrowing authority due to budget impasses on Capitol Hill. The stalemate has already caused a partial government shutdown that is currently in its second week. The U.S. already hit the debt ceiling in May but has been using what it calls "extraordinary measures" since then - technical rearrangements of investments that have allowed the nation to continue paying its obligations.
According to Treasury Department estimates, the U.S. will run out of borrowing authority on Oct. 17, at which point it will have roughly $30 billion on hand to pay its bills. The Bipartisan Policy Center on Tuesday estimated that the U.S. would no longer be able to fully pay all of its bills somewhere between Oct. 22 and Nov. 1. Defaulting, the Treasury Department estimated in a report released Oct. 3, could mean a downturn worse than the Great Recession.
Lew was brought on as the new secretary of the treasury at the start of Obama's second term. As a former director of the Office of Management and Budget, Lew was seen as a potentially useful instrument for helping the administration reach out to Capitol Hill, where fiscal fights have become commonplace. Partisan divides were clear at the hearing, with Republicans and Democrats both insisting that the other party was being unreasonable.
"I think the record is clear that the president has negotiated, has wanted to negotiate and remains anxious to negotiate on a bipartisan basis to have a fair and balanced approach to dealing with our fiscal problems," Lew said.
"It's not clear to me," ranking member Orrin Hatch, R-Utah, shot back.
The two parties also framed their arguments in vastly different terms. While Democratic senators tended to side with Lew, pointing to the economic catastrophe that might result from a default, Republicans framed the debate in terms of what they perceive to be outsized government spending.
"Avoiding a debt limit crisis today and a debt crisis tomorrow should be our objective," said Rob Portman, R-Ohio.
However, raising the debt ceiling does not itself create new spending.
The hearing featured lengthy discussion on debt payment prioritization, the idea that the Treasury, having exhausting its borrowing authority, would pay certain bills as money comes in. Some Republicans have championed this idea, downplaying the potential effects of the U.S. hitting the end of its borrowing rope.
Lew vehemently disagreed Thursday morning, calling prioritization "default by another name." He both attacked the ethical side of prioritization -- choosing who should get paid and who should not -- and the logistical side.
"I don't believe there is a way to pick and choose on a broad basis," he said of the Treasury's automated payment systems. "This system was not designed to be turned off selectively."
He also added that tax payments can come in at different times than estimated, which can create swings of billions of dollars in daily Treasury receipts. That could throw off any prioritized payment scheme, Lew said.
When Hatch asked for a specific figure on how high the debt ceiling should be, Lew declined to list specific numbers, instead saying that a higher limit would provide more certainty.
"Senator, the question of how long is one I'm answering as clearly as I can," Lew said."The longest that Congress is prepared to extend it for is the best."