Treasury Secretary Jacob Lew delivered a stern warning to Congress on Thursday about the consequences of not raising the debt ceiling, saying Social Security checks and benefits for veterans are among the payments that could be halted in such a scenario.
Lew testified Thursday before the Senate Finance Committee. He spoke amid claims from some corners that missing the Oct. 17 deadline does not necessarily trigger the doomsday scenario of default on the debt.
Lew also did not go so far as to claim payments on the debt would be jeopardized after Oct. 17. However, he said myriad other payments inevitably would be -- which he described as a "default" in the general sense.
"Under any scenario, we will be defaulting on obligations," Lew said.
Lew, in a written statement, warned that upcoming payments for the following could all be jeopardized before Nov. 1:
- Social Security payments
- Medicare payments
- Veteran benefit payments
- Active-duty military salaries
"The United States should not be put in a position of making such perilous choices for our economy and our citizens," Lew said.
Lew said missing that deadline would cause financial chaos, hurting the economy and shaking the financial markets to a degree that could cripple the economic recovery. He urged Congress to promptly raise the debt ceiling and pass a spending bill to restore confidence.
The appearance was yet another public restatement of the administration's stance that Congress needs to pass a spending bill and lift the U.S. borrowing cap before President Obama will negotiate over the nation's budget ills.
Sen. Orrin Hatch, R-Utah, though, argued that the nation's overspending needs to be dealt with, and he bristled at Obama's repeated claims that the debt ceiling should be raised to pay for spending Congress racked up. "It is a problem that all of us ... need to deal with," Hatch said.
He also said it is "disconcerting" to hear Social Security and other payments could be stopped.
In a glimmer of hope for a possible deal, some Republicans are discussing the possibility of permitting a short-term increase in the debt ceiling to allow for further negotiations. Obama is hosting top House Republicans on Thursday afternoon to discuss the impasse, which so far has resulted in a partial government shutdown.
The next big deadline is Oct. 17, when the Treasury Department says the government will exhaust ways to pay all its bills without an increase in the debt ceiling.
Credit-rating agency Moody's, though, released an analysis on Wednesday that claimed even if the government missed that deadline, a default on the debt would not happen. Moody's argues that the Treasury Department would find a way to pay interest on its debt above all else.
"We believe the government would continue to pay interest and principal on its debt, even in the event that the debt limit is not raised, leaving its creditworthiness intact," the analysis said. "The debt limit restricts government expenditures to the amount of its incoming revenues; it does not prohibit the government from servicing its debt. There is no direct connection between the debt limit (actually the exhaustion of the Treasury's extraordinary measures to raise funds) and a default."
The analysis also noted that the next interest payment -- of $5.9 billion -- is not due until the end of the month.
Still, few would claim that the implications of not raising the debt ceiling are minor. Even if the government can pay interest on the debt, it would be unable to pay myriad other obligations -- officials say the government would have to choose between priorities like Social Security checks and many other functions of the federal government.
The uncertainty could severely damage the economy and shake the financial markets.
Some officials argue, though, that since this is uncharted territory it's ultimately unclear whether the Treasury Department could prioritize payments -- and that a default on debt is a possibility.
"A default would be a financial heart attack," Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, said Thursday.
Lew on Thursday also questioned his ability to prioritize payments.
The Associated Press contributed to this report.