Janet Yellen’s Treasury is preparing for “difficult choices” if debt-reduction talks fail

The so-called payment priority, which officials have studied and fiddled with but never used in practice, could allow the United States to avoid defaulting on its debt – the financial tools that serve as a lifeline for global markets. But it would require policymakers to delay funds sent to other individuals and businesses.

“There are going to be hard choices to make about bills that aren’t paid,” Yellen said Sunday on NBC’s “Meet the Press.”

It’s a political stance that current and former administration officials say key players in the Treasury’s debt-finding business have long avoided.

“What is underappreciated is the non-political role of the Treasury,” said Ben Harris, who recently resigned as the department’s chief economist. “Many of the people involved in these discussions are professional civil servants whose only real interest is in the health of the financial system.”

Relenting at arm’s length

Yellen is not at the negotiating table with House Republicans over the debt ceiling deal. But she coordinates with the White House at a senior level, holding several meetings between the department and the White House per week, according to administration officials.

The White House is taking a somewhat scattershot approach to how the Treasury Department does its work. The two are working closely on the letters, but one White House official said the intention is for the Treasury Department to be seen as having a degree of autonomy. This is why Yellen’s hypothetical warnings are taken so seriously, and so the “date X”—the prediction of when the government won’t be able to pay all of its bills—doesn’t get politicized.

Inside the building, Yellen and Deputy Secretary of State Wally Adeyimo have a daily call with the Treasury office that tracks developments in global trade, known as the Chamber of Markets, a Treasury spokesperson said. Yelin got a daily briefing on the X date forecast for the past few months.

Yellin team

Yellen backs a group of lesser-known officials who each bring decades of experience in government and fiscal policy to the challenge of navigating what she calls a potential “economic and financial storm.”

Treasury Assistant Secretary of Finance David LeBrick, the department’s highest-ranking functional officer, is responsible for funding government operations and overseeing forecasting when liquidity will run out. Liberec, who has Harvard degrees in economics and public administration, joined the Treasury Department as an intern in 1989. In addition to setting the X date, his group will also play an important role in identifying potential payment priorities after the deadline.

Assistant Secretary for Financial Markets Joshua Frost, a political appointee who was confirmed by the Senate about a year ago, is charged with understanding how the market interacts — including the executives of banks and credit rating services. He spent more than two decades at the Federal Reserve Bank of New York. Like Liberec, he works under the local undersecretary of finance, Neeli Liang, another Fed expert.

The Treasury is also part of the administration’s review of legal issues related to the debt limit, including a possible invocation of the Fourteenth Amendment to the Constitution. Key players on the Treasury’s legal team include General Counsel Neil McBride and Principal Deputy General Counsel Lori Schafer, who previously served at the Federal Reserve. The Treasury Department’s primary liaison to Capitol Hill is Assistant Secretary of the Treasury for Legislative Affairs Jonathan Davidson, a longtime congressional aide who was formerly the senator’s chief of staff. Michael Bennett (d-colo).

“For the average American, you can bring them up in a debate at the Treasury Department and you won’t hear debates about Democrats and Republicans,” Harris said. You will hear discussions about avoiding recessions and keeping credit markets doing well. It is a very technocratic discussion, with the main concern being about the full faith and credit of the United States. It is not about which political party will come out in the future.”

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