Lew: Forcing default is 'irresponsible and reckless'

• On Oct. 17%2C the Treasury says it will run out of borrowing authority and have %2430 billion in cash
• Government won%27t be able to make %2458 billion in federal payroll and benefits payments due Nov. 1
• Sen. Orrin Hatch said Lew was creating %22needless panic%22 in the markets with his remarks

WASHINGTON — Treasury Secretary Jacob Lew chided Congress Thursday for refusing to raise the nation's debt ceiling, saying that waiting until the last minute to avoid default could prove "very dangerous."

"It is irresponsible and reckless to insist that we experience a forced default to learn how bad it is," Lew told the Senate Finance Committee. "We now find ourselves on the precipice with some Republicans once again threatening default."

Lew has been sounding the alarm on the debt limit for months, warning Congress that he must be given more borrowing authority or else risk the prospect that the United States may not be able to pay all its bills.

Even the debate over the debt limit "is beginning to stress the financial markets," Lew said. At an auction of four-week Treasury notes Tuesday, the government was forced to offer almost three times the previous interest rate because of weak demand, Lew said.

Those warnings have become increasingly dire as the nation approaches Oct. 17 — the date at which Lew says he will have run out of maneuvering room. At that point, the Treasury will have $30 billion, and could be pushed into default as soon as Oct. 22, according to the Bipartisan Policy Center.

"The United States, the most powerful nation in the world, will be forced to look for loose change in the sofa in order to pay its bills," said committee Chairman Max Baucus, D-Mont. He called the debt limit battle "a self-inflicted wound with global consequences."

Lew dismissed arguments from some congressional Republicans that the Treasury could simply prioritize payments — making interest payments on the debt first, so the nation wouldn't go into default.

A debt limit breach would likely increase those interest payments, Lew said, because investors would take their money out of Treasury securities and new investors would demand higher interest rates.

After that, Treasury payment systems aren't designed to pick and choose which of the 80 million monthly checks Treasury would not pay. And there's no law to guide which obligations should take precedence.

"Mr. Chairman, I don't know how you could possibly choose between Social Security and veterans benefits, between Medicare and food assistance," Lew said. "These are obligations we've made."

Sen. Orrin Hatch, R-Utah, the leading Republican on the committee, has said that Lew's comments blaming Republicans for the impasse were "unproductive and misguided," and that Lew was creating "needless panic" in the markets with his remarks.

Hatch pressed Lew to recommend a specific size and duration of a debt limit increase, but Lew declined.

"I've tried to be clear that I think longer certainty would be very good for the economy, and the shorter the period, the less stability it provides," Lew said. "You know, when you talk about shifting debates to different time periods, retailers are very worried about what happens in November and December if we are going through what we're going through now."

Senate Democrats have pushed for a "clean" debt limit increase that would raise the debt limit without linking that increase to spending cuts.

"We don't know what they mean by a 'clean' increase. We don't even know how much of an increase they want or for how long. Apparently, even making such desires known would constitute a negotiation," Hatch said. "This posture is neither productive nor helpful toward resolving the current impasse over the debt limit."

Sen. Chuck Grassley, R-Iowa, noted that since 1978, only 26 of 53 debt limit increases were "clean" increases, with no accompanying budget reforms or policy changes.

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