In testimony on Capitol Hill on Thursday before the Senate Finance Committee, Jack Lew was asked about the debt ceiling as it relates to the US’s payments on current debt. His answer was terrifying.

from CNS:

“A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors,” says the Securities and Exchange Commission.

“With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue,” explains the SEC. “Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.”

On Thursday, Lew candidly told the Finance Committee that the U.S. Treasury will not be able to pay off current government debt-holders when their debt is due if the Treasury is not able to turn around and issue an even greater amount in new debt to get the cash it needs to do so.

“Every week we roll over approximately $100 billion in U.S. bills,” Lew testified. “If U.S. bondholders decided that they wanted to be repaid rather than continuing to roll over their investments, we could unexpectedly dissipate our entire cash balance.”

“There is no plan other than raising the debt limit that permits us to meet all of our obligations,” he said later.

“Let me start by saying what I think should be obvious: that if we don’t have enough cash to pay all our bills, we will be failing to meet our obligations, and under any scenario we will be defaulting on obligations,” said Lew.

“Let me remind everyone,” he said, “principal on the debt is not something we pay out of our cash flow of revenues. Principal on the debt is something that is a function of the markets rolling over.”

Lew’s contention that the federal government cannot pay its current debt-holders unless its gets cash by selling new debt to make those payments is demonstrated by the daily accounting statements published by the Treasury.

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