The Obama administration deliberately withheld information and kept Congress in the dark on how it was going to prioritize payments if the debt ceiling was not raised, according documents subpoenaed by the House Financial Services Committee.
The documents reveal that the Obama administration directed the Federal Reserve Bank of New York to prioritize Social Security, veterans’ benefits, and principal and interest payments on the debt over other government obligations in the event that the debt ceiling was not raised.
While the administration was directing the New York Fed to prioritize payments, officials were telling the American people that prioritizing payments was "unworkable" and that they never made a decision to do so.
The Obama administration directed the New York Fed to keep the plan to prioritize payments a secret so that it would "maximize pressure on Congress" in order to support its "no negotiation" position on raising the debt ceiling.
The New York Fed objected to keeping the public in the dark and encouraged the Treasury to reveal their secret plan in order to prepare financial markets for a debt ceiling event. The Federal Bank of New York called the Treasury’s approach to this situation as "crazy, counter-productive, and adding risk to an already risky situation."
"Rather than choosing the responsible course of action advocated by the Federal Reserve to ensure that the private sector was as prepared as possible for a debt ceiling event, Treasury opted instead to conceal its contingency planning from Congress and the public to advance the Administration’s political ends," the committee wrote.
"This report shows President Obama manufactured a crisis to put politics ahead of economic stability," said Rep. Sean Duffy (R., Wis.). "Shame on him. Rather than being honest, the administration deliberately misled Congress and the American people about their ability to honor our commitments to our nation’s veterans and seniors."
"As the debt grows, the interest payments on that debt will grow as well," said Veronique de Rugy, a research fellow at the Mercatus Center, who spoke at a hearing at the Financial Services Committee on Tuesday. "To be sure, default should not be an option on the table. However, raising the debt ceiling without a commitment to improve our long-term debt problem has adverse consequences."