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Here Comes The Debt Ceiling...But Does That Mean?


As the debate over the debt ceiling continues, we thought it'd be helpful to explain just how the Treasury pays bills and how many bills it pays. To help with that, we brought in Tony Fratto. He was assistant secretary for public affairs at the U.S. Treasury under the George W. Bush administration.

TONY FRATTO: The best estimates are around four million transactions a day, on the order of around 100 million transactions a month, so it's a lot.

BLOCK: And I've seen this described as transactions being processed dozens of times every second.

FRATTO: That's right. I think people have a hard time understanding just the size and scale of the federal government. It's really big. And we're talking about a budget of $3.5 trillion. That's a lot of money. That's a lot of different kinds of people and accounts who are spending that money. They're ordering things and paying people and paying for rent and so it's a lot of different kinds of transactions that the government carries out.

BLOCK: Well, let me run by you a comment from the noted economist Martin Feldstein who says there really is no need for a default on the debt, even if the debt ceiling is not raised. He says the U.S. government collects enough in taxes each month to finance the interest on the debt, et cetera. What's wrong with that argument?

FRATTO: I think Feldstein is looking at it the wrong way and he's not alone. You know, Senator Toomey has a bill on the floor that...

BLOCK: Pat Toomey, Pennsylvania.

FRATTO: ...essentially says the same thing. And I think the problem that a lot of people who looked at this issue have when they think of the federal government cash accounts on a monthly basis, they say, well, there's revenue that comes in every month and there are obligations every month. And if you look at it on a monthly basis, we can make those payments.

The problem is, is that the government lives on a daily basis. It has to settle accounts every single day. And so the obligations to the government, the things the government has to pay, they're very spiky. We have a big bill to the Social Security system early in the month. We have other parts of the month where you have to make other very large payments.

The revenue is also very spiky. It doesn't come in the same every day. It doesn't even come in the same every month. So this uneven flow of revenues and the uneven presentation of obligations of things that the government has to pay makes trying to match up those bills with revenues very, very difficult to do and probably impossible.

BLOCK: You know, if you step back from this discussion a little bit, Tony Fratto, you might wonder why we even have a debt ceiling that Congress has to vote to raise.

FRATTO: I often wonder that.

BLOCK: You often wonder that.

FRATTO: I often wonder why we have a debt ceiling.

BLOCK: But it is a real question, right? If money has been appropriated by Congress and if, as the administration argues, there shouldn't be negotiation over the debt limit, is it effectively just a rubber stamp? Is it an anachronism? Why do we have it?

FRATTO: It really is an anachronism. It's from an earlier time when - Congress was doing the right thing, I think, with the debt ceiling. If you think about it, it was an actual - it was actually a reform. Originally, Congress would have to approve every single debt offering by Treasury and this became very cumbersome from Treasury to have to go, every time they would issue debt, to go ask Congress to pass a law.

It was cumbersome for Congress. Congress actually did a reform in setting the debt limit...

BLOCK: And that was in 1917.

FRATTO: 1917, they reformed it again in the late 1930s and early 1940s. But if you think of the logic of the debt ceiling, it require the executive branch to ask Congress for the authority to finance the money that they need to carry out the laws that Congress has mandated that it carry out.

So the executive branch doesn't really have a choice here. It needs to raise this money, otherwise it would be violating the laws of Congress. So to then have to ask Congress for the authority to raise that money, it becomes a very circular logic. So we could do without the debt ceiling. I think there's a misunderstanding out there. If you talk to most - most Americans think we shouldn't raise the debt ceiling because they think it provides some limit on spending.

And it really doesn't. It has nothing to do with spending in the future. It merely allows the government to raise the money to pay for the programs that have already been authorized.

BLOCK: It does perhaps focus the mind, focus the attention of both Congress and the country.

FRATTO: It does, indeed. And actually, when it was just that, when it was an opportunity to spend a day on the House and Senate floor debating and discussing and analyzing the size of deficits and the size of the debt, that was probably a useful and even a very healthy exercise. But when it has become to be used as a cudgel to try to hold up the functioning of government, it becomes very, very concerning.

It's very concerning here. It's also very concerning globally.

BLOCK: Tony Fratto, thanks for coming in.

FRATTO: Thanks for having me.

BLOCK: Tony Fratto was assistant secretary for public affairs at the U.S. Treasury Department during the administration of George W. Bush. He's now with the consulting firm Hamilton Place Strategies. Transcript provided by NPR, Copyright NPR.