Jared Bernstein: 'It Is Absolutely False that the Treasury' Won't Default if Debt Ceiling Not Raised

'There could easily be a day ... where cash flow is less than the interest payments that have to go out that day'

BERNSTEIN: "This is exactly what you would expect if we start fooling around with the debt ceiling. It's called a risk premium and it means that anyone who considers lending to U.S. government historically the safest creditor in the, in the world would want to see some extra points, if you will, on their interest rate in order to be covered for the kind of risks that folks like Mr. Yoho were just talking about. And you know, let's be very clear about how wrong he is on that point. What he is talking about is prioritization where the argument is the treasury can pay some bills, not others. It is absolutely false that the Treasury can do that even with its creditors. Even with the folks to whom it owes interest payments because there could easily be a day, Mark will back me up on this, easily be a day where cash flow is less than the interest payments that have to go out that day, and at that point you are technically in default."
O'DONNELL: "Mark, go ahead."
PATTERSON: "Well -- Jared is absolutely right but I want to say something else. There is something even scarier, Lawrence, and that is if we pass this date and the Treasury Department is left with no borrowing authority, you could have a situation where people whose debt is maturing each week decide to take their money elsewhere because they're spooked, because they're afraid of what is happening in the U.S., because they're losing confidence in the U.S., and that would be a situation kind of like if you were a homeowner and all your credit was cut off and suddenly the bank says you have to pay off your car today in full. You have no cash to do it. That would be the situation that the U.S. would be in if, if investors did not, what they call, roll over their debt, which is reinvest in treasuries when their treasuries mature. So there is a lot of scary scenarios out there, Lawrence, and that's just one of them."

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