The Daily Hatch

According to Treasury Secretary Timothy Geithner, the U.S. government will reach its legal borrowing limit–the debt ceiling–on August 2. What will happen if the White House and congressional Republicans don’t reach an agreement before then? Will the U.S. be forced to default on its debt? In her latest appearance on Bloomberg TV, Reason columnist and Mercatus Center economist Veronique de Rugy explains the facts about the debt ceiling by separating economic myth from economic reality.

Myth 1: If a deal is not reached by August 2, the U.S. will default on its debt.
Fact 1: The Treasury Department can prioritize payments in order to avoid a default.

Myth 2: If the debt ceiling isn’t raised the government won’t be able to pay Social Security benefits.
Fact 2: There are approximately $2.6 trillion dollars in the Social Security Trust Fund. Those assets can be used to pay benefits. Furthermore, there is already trillions of dollars of interagency debt that counts toward the $14.29 trillion debt limit. Treasury Secretary Timothy Geithner could convert that interagency debt into publicly-held debt, preventing not only a technical default but also preventing any delay in government payments.

Myth 3: The Treasury cannot use the Social Security Trust Fund to delay a default past August 2.
Fact 3: While the Treasury can’t use money from the Social Security Trust Fund, it can “disinvest” from other trust funds to pay for benefits.

For additional information, see de Rugy’s article “The Facts About the Debt Ceiling.” http://reason.com/archives/2011/07/18/the-facts-about-the-debt-ceili