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The Treasury Department has taken extreme measures to get around the federal debt limit, including tapping federal retirement funds and delaying investments into those funds. The idea is to make it until Aug. 2, when the money truly runs out and the government begins to default on its payment obligations.

But what happens then, exactly? The consensus is that Congress and the White House would have to make a deal to raise the limit (in exchange for deep cuts in spending) to avoid economic calamity. And once a deal is reached, Treasury is required to make good on the money withheld from the retirement fund.

But National Journal reports today (subscription required) that Sen. Minority Whip John Kyl, R-Ariz., is making the case that blowing past the August deadline without an agreement is no big deal:

Kyl also argued that the United States will not default on obligations if Congress fails to raise the debt ceiling, saying Treasury could instead freeze spending, perhaps by delaying payment to federal employees and members of Congress. "I don't think any creditor should be of the view that somehow we're not going to pay them when their T-Bill comes due" he said. "That's not going to happen."

Kyl's not some off-the-wall obscure legislator, either. He's a member of the House leadership who is participating in budget talks led by Vice President Joe Biden to try to deal with the debt crisis.


  • What total BS! As a federal employee, my salary is an obligation of the federal government. I perform a service in exchange for payment. Failure to pay me or delaying my pay check is clearly a default on an obligation of the federal government. When is this BASHING of federal empolyees going to stop?!

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