Introduction
President Barack Obama’s communications director said we’ve “never” been in danger of defaulting before. That’s not true. Congress has come close to failing to raise the debt ceiling before defaulting more than once in recent years, under both Presidents Bill Clinton and George W. Bush.
White House Communications Director Dan Pfeiffer appeared on CNN’s “John King USA” on July 26, and he told guest-host Jessica Yellin that “in the 200-plus years of our country, we’ve never been in a situation where we have been in danger of defaulting on our obligations.”
Yellin: First, let’s just start with the basics, something that matters to every American. How dire will it be for this economy if the debt ceiling is not raised?
Pfeiffer: Well in the 200-plus years of our country, we’ve never been in a situation where we have been in danger of defaulting on our obligations. And so what we know is it will create tremendous market uncertainty.
Treasury Secretary Timothy Geithner has said that if Congress does not raise the current debt limit — the amount of money that the federal government is allowed to borrow to pay for things such as benefits for entitlement programs and the interest on the national debt — the country will begin to default on its obligations on Aug. 2.
Treasury has been using various accounting options to delay a default for several months now, while Democrats and Republicans have debated raising the current $14.29 trillion limit. And with less than a week to go, there is still no agreement between the House and Senate on the terms that would allow the debt limit to be increased.
But is this the first time the country has been in “danger” of defaulting, as Pfeiffer claimed?
Hardly. We came close at least three other times, as recently as President George W. Bush’s first term, according to a Congressional Research Service report on the history of the debt limit increases.
In 2002, for example, the country came within $15 million of reaching the $5.95 trillion statutory debt limit in May, before the Treasury Department, which had first requested that the debt limit be raised back in December 2001, again began using “extraordinary actions” to avoid a default.
Congressional Research Service: The Treasury reduced federal debt held by these government accounts by replacing it with non-interest-bearing, non-debt instruments, which enables it to issue new debt to meet the government’s obligations. The Treasury claimed these extraordinary actions would suffice, at the latest, through June 28, 2002. Without a debt limit increase by that date, the Treasury indicated it would need to take other actions to avoid breaching the ceiling. By June 21, the Treasury had postponed a regular securities auction, but took no other actions. With large payments and other obligations due at the end of June and at the beginning of July, the Treasury stated it would soon exhaust all options to issue debt and fulfill government obligations, putting the government on the verge of default.
Paul O’Neill, who was then Treasury secretary, pleaded with members of Congress to raise the debt ceiling in April that year, according to the Associated Press.
“You’re going to have to raise the debt ceiling or you’re going to have to find a new Treasury secretary, because I’m not going to go to jail because you failed to act and I have to take some extraordinary action that is unconstitutional. I’m not going to do that,” he told Congress. The AP reported that the issue back then was that Democrats wanted to use raising the debt ceiling as an election issue to show their displeasure with the approval of the first round of Bush tax cuts, and that some conservatives were concerned that raising the debt limit would lead to increased spending.
The Senate didn’t pass a bill authorizing the debt limit to be raised to $6.4 trillion until June 11. And the House passed the increase by just one vote more than two weeks later on June 27. Bush didn’t sign the increase into law until June 28, the very day that Treasury said it would have to use its resources once more to avoid defaulting. Similarly intense negotations on raising the debt limit followed over the next two years.
In 2003, the Treasury used similar accounting maneuvers to again hold the debt limit within just millions of dollars of hitting the debt ceiling, while Congress debated raising the limit. Congress finally sent a bill increasing the limit to $7.384 trillion for Bush’s signature in late May, nearly five months after Treasury first began issuing warnings of default.
And in 2004, Congress didn’t reach an agreement on raising the debt ceiling until November 18, around the time that the Treasury said it would once again have exhausted all of its options to avoid default.
The U.S. also flirted with default under President Clinton. In what the then-General Accounting Office called the “1995-1996 debt ceiling crisis,” the Treasury again used various accounting steps to put off a default until Congress and the president could agree to raise the limit.
GAO, Aug. 1996: On August 10, 1993, the Congress raised the debt ceiling to $4.9 trillion, which was expected to fund government operations until spring 1995. In early 1995, analysts concluded that the debt ceiling would be reached in October 1995. This set the stage for the 1995-1996 debt ceiling crisis, which was resolved on March 29, 1996, when Congress raised the debt ceiling to $5.5 trillion.
The GAO report shows that the measures the Treasury took to stave off default included issuing a debt-issuance suspension period, redirecting funds from a civil service pension fund to make federal debt interest payments, and once issuing previously exempted Treasury securities to make payments for Social Security benefits.
Congress has acted to “permanently raise, temporarily extend, or revise the definition of the debt limit” a total of 78 times since 1960, according to the Treasury Department. But it has come close to defaulting on previous occasions, contrary to Pfeiffer’s claim that we have never been in danger of doing so.
– D’Angelo Gore
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