Fed said to have debt ceiling plan involving market interventions

May 11
6:40 PM 2015

The Federal Reserve drew together extensive plans for handling a U.S. debt default that included scheduling deferred payments and lending cash to investors, according to a top lawmaker who cited Fed documents.

In a June 2014 letter to Treasury Secretary Jack Lew which was seen by Reuters, Texas Republican Representative Jeb Hensarling said his staff reviewed Fed documents detailing the U.S. central bank's contingency plans if America stiffed its creditors.

The documents showed "planning by the Federal Reserve Bank of New York to minimize market disruptions if the (Treasury) Department decided to delay Treasury bond payments," Hensarling said in the letter which was also signed by Republican Congressman Patrick McHenry of North Carolina.

The New York Fed declined to comment.

Political fights over the national debt nearly left the United States unable to pay its bills in 2011 and 2013, and the Treasury Department is currently scraping up against an $18.1 trillion legal cap on federal borrowing.

The Congressional Research Office estimates the government could struggle to pay bills by October if Congress and the White House do not agree to lift the cap.

In the letter, Hensarling said the documents also showed that the Treasury had the ability to pick which obligations it can pay, which would allow it to favor bond investors over its many other obligations.

The Treasury has maintained that picking which bills to pay would be experimental and dangerous.

Earlier on Monday, Hensarling subpoenaed documents from the Treasury and New York Fed regarding debt ceiling contingency plans.

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