AP Timothy Geithner

Much of the discussion over the debt ceiling assumes that the final word on the matter will rest with Capitol Hill lawmakers. A note today from Citigroup analyst Brett Rose suggests that this assumption might not be sound.

Rose argues that the US Treasury Department has several tactics to keep funding government operations and debt obligations in the event that the debt ceiling is reached, according to Business Insider.

• Accounting tricks. At least for some time, the Treasury Department could plausibly claim that the debt has not be reached for technical accounting reasons.
  
• Sell Assets. The Treasury Department is already selling some of its mortgage backed securities, and has announced plans to sell its stakes in AIG, Chrysler, and Ally Financial. It could accelerate these sales and sell other assets acquired with TARP funds. Rose notes that the Treasury also has $400 billion of student loans that could be sold.
  
• Stop counting debt issued to pay Social Security benefits. In 1996, Congress temporarily stopped counting bonds issued to pay Social Security benefits against the debt ceiling. Rose figures this would acquire Congressional approval.
  
• Suspend tax refunds. Rose doesn’t mention this, but the Treasury Department could also just stop sending out refund checks to taxpayers.

Finally, the Treasury Department could simply issue debt in breach of the debt ceiling.

That sounds pretty radical—but Tim Geithner has already demonstrated that he is willing to take radical and illegal steps to protect what he sees as the national interest.

For example, Geithner’s Treasury Department ignored the law that explicitly forbid the government from putting conditions on banks that wanted to repay TARP. He forced the banks to show they could issue non-guaranteed debt before he permitted them to repay their TARP funds. This was completely illegal—but he got away with it.

One reason he got away with it is that the banks were unwilling to challenge him. No bank wanted to sue the Treasury over exiting TARP—and no one but the banks had standing to bring a lawsuit.

Similarly, it is probably only members of Congress and Senators who have legal standing to sue the Treasury if it issues debt above the ceiling. I suspect that while some lawmakers might vigorously complain about the illegal debt and may even call for Geithner’s impeachment, very few lawmakers would attempt to force a default by taking him to court. Probably the only lawmakers who would dare do this are Congressman Ron Paul and Senator Rand Paul.

Even if the Pauls were to sue, it’s far from clear that the federal courts would order the Treasury to stop issuing debt. What judge wants to be known in the history books as the guy who ordered America to default? In any case, courts are loathe to step into these kind of disputes between the executive and legislative branch. Most likely, they would seek to duck the issue on technical legal grounds.

So relax. There’s no way Tim Geithner is going to let the US government default—even if Congress refuses to raise the debt ceiling.

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