Bumping up against the debt ceiling comes at a cost.
Whenever the federal government reaches its debt limit, as it did on Sunday, it marks the beginning of a period of uncertainty. In the case of such a fiscal emergency, the Treasury Department breaks the glass and pulls out emergency tools to buy some extra time before the government defaults on its debts. But, thanks to difficulty in tracking the shifting debts and revenue of the world’s largest economy—and the unpredictable effects of sequestration—no one knows exactly how much time the emergency measures will buy this time around. Treasury’s best estimate is that, without Congress stepping in, a default would occur after Labor Day. What is clear is that it all comes at a price.
When the government went through a similar ordeal two years ago, it cost roughly $1.3 billion in increased borrowing costs for Treasury, according to a July Government Accountability Office report. And Treasury staff began preparing for the unprecedented fiscal event six months out, pulling them away from other duties.
Here’s how the last debt-ceiling saga played out, according to GAO (with emphasis added):
“To manage federal debt when delays in raising the debt limit occurred in 2011, Treasury officials estimated that [Office of Fiscal Projections] spent almost 15 staff hours per business day performing these tasks. In addition, Treasury officials estimated that OFP expended about 200 staff hours in total to prepare for and manage the extraordinary actions taken in January 2012.
"[The Bureau of the Public Debt]—the bureau within Treasury that is responsible for implementing the extraordinary actions and for the accounting associated with those transactions—also dedicated extensive resources to operations related to the debt limit. BPD estimated that managing federal debt when delays in raising the debt limit occurred in 2011 and January 2012 resulted in almost 5,750 hours of work, including over 400 hours of overtime and compensatory time. This included more than 1,200 hours in the weeks prior to the use of extraordinary actions for meetings, preparation of parallel accounts and spreadsheets to use in tracking uninvested principal and interest losses, tests of the accounting system, and training staff.... After the debt limit was increased, BPD estimated that it spent over 500 hours on activities such as restoring uninvested funds and preparing reports.”
Some Republicans see it as an important lever to get Democrats to agree to a framework for tax reform. Democrats and many experts contend, however, that it's a dangerous tactic—one that risks shaking confidence in the creditworthiness of the nation and that could prove damaging to the global economy. It has nothing to do with spending, they argue; it simply would allow Treasury to pay for what Congress has already approved. Either way, the closer the deadline gets, the costlier it could become.