STEVE INSKEEP, HOST:
When will the United States run out of money available to pay its bills? Economists at Moody's Analytics say the day is August 18 unless, of course, Congress acts to raise the debt ceiling. An analysis that Moody's prepared for the Senate Banking Committee also warns of dire consequences if the U.S. should default on its debts. Cris deRitis is the deputy chief economist at Moody's Analytics and one of the co-authors of that report. And he's on the line. Good morning.
CRIS DERITIS: Good morning, Steve.
INSKEEP: OK. Let's try to work through the basics here. The country actually reached the debt ceiling in January, got to the point where the U.S. had borrowed as much as current law will allow it to borrow. And yet, our bills are still being paid. So what exactly is happening?
DERITIS: Yes. So on January 19, we hit the ceiling. Now, the U.S. Treasury has what they call extraordinary measures, where they can delay payments to certain accounts. They can delay funding the retirement accounts of federal government workers, for example, or move some other accounts around to continue to stay under the debt ceiling. But that only lasts so long. So by August 18, we estimate the Treasury will no longer have that room to maneuver. And we will be facing the real debt ceiling.
INSKEEP: And I guess we should remind people, everybody involved here has said we're not going to default on the debts. We're not going to blow through the deadline. But House Republicans have refused, actually, to do what would be required in order to raise the debt ceiling, saying they want a larger negotiation over government spending and then declining to make any specific proposals for what they want to do. And so it's a bit of a standoff for the moment. What would happen if the United States were to fail to do anything and were to get to August 18 and the U.S. begins defaulting on debts? What does that even look like?
DERITIS: Right. Well, we've never done this before. We've always come right up to the debt ceiling. And at the last minute, we have negotiated to either suspend it or increase it. So we don't actually know specifically what would happen. And what would happen or what the consequences would be would really depend on the path that we take, right? So for example, the president could possibly invoke the 14th Amendment of the Constitution, which states that the validity of the public debt shouldn't be questioned, and authorize additional debt to be issued. That would certainly be challenged in court. It would go to the Supreme Court to judge whether the debt ceiling is actually constitutional or not. So it would be a constitutional...
INSKEEP: I guess we should explain, the U.S. would be selling new bonds, borrowing money in order to pay off old debts that have come due, right? That's what needs to happen here.
DERITIS: That's correct. That's correct. At a basic level, it needs to continue to borrow to continue funding. Or the spending has to be restricted in some way.
INSKEEP: OK. And you're saying that one option is the president says, according to the Constitution, I have to do this. And I'm going to disregard congressional laws otherwise. What's another path the U.S. could take?
DERITIS: Another path that's been put forward is to try to prioritize payments on the debt. So perhaps the Treasury could only pay bondholders. So we, in theory, should continue to maintain the high credit rating that the United States has. But they forego payments to other recipients. And that could include government contractors, utility companies as well as, of course, Social Security recipients, veterans, right? We start to try to prioritize the payments. That's unlikely to fail as well. That's not particularly sustainable. And so at that point, we would be facing the same issue. Congress would have to act.
INSKEEP: Are we looking at a recession regardless of how the United States would respond to a default or respond to this crisis situation in August?
DERITIS: Most likely, to some degree, right? It really depends what happens after the default would be incurred. If cooler heads prevail, Congress comes together and tries to patch things up very quickly, we could avoid a significant recession. If this would be prolonged - if Congress really can't make a decision, we continue not to make payments, we stop making payments even to debtholders - then, of course, we're facing high unemployment. We estimate 7 million jobs could be lost in that very dire situation where we just can't come to a decision.
INSKEEP: Now, as you know, Republicans who are involved in this negotiation, such as it is, will sometimes use the kitchen table analogy, you know? If a family is short of money, they get together and they cut the spending. The president and many others are saying that's a completely wrong analogy, a deceptive analogy. Do you think that it captures any part of this?
DERITIS: I think the two issues are important. But they need to be separated, right? We're talking - in terms of the debt ceiling, we're talking about paying bills that have already been incurred. And we need to make good on those payments. And we're thinking about future spending. Obviously, we need to get the budget under control. And we need to have a very open conversation about taxes and spending.
INSKEEP: Mr. deRitis, thanks so much, really appreciate it.
DERITIS: Thank you very much. Thank you.
INSKEEP: Cris deRitis is the deputy chief economist at Moody's Analytics. Transcript provided by NPR, Copyright NPR.
