Lew Warns U.S. Likely to Hit Debt Ceiling in February — Not March

Treasury Secretary Jack Lew testifies before the US Senate Finance Committee about the debt limit on October 10, 2013, on Capitol Hill in Washington, DC. 
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Catherine Hollander
Jan. 16, 2014, 5:59 a.m.

Treas­ury Sec­ret­ary Jac­ob Lew warned law­makers Thursday that a fi­nal dead­line for rais­ing the na­tion’s bor­row­ing lim­it is likely to ar­rive next month, not in March, which he had pre­vi­ously said was a pos­sib­il­ity.

“I think that if Con­gress is look­ing at the num­bers the way we are — we have the best data — they would see that they would be look­ing more at the end of Feb­ru­ary than any time in March,” Lew said Thursday at a dis­cus­sion hos­ted by the Coun­cil on For­eign Re­la­tions.

The $17 tril­lion debt ceil­ing, which was sus­pen­ded in Oc­to­ber as part of the agree­ment to re­open and fund the gov­ern­ment fol­low­ing a 16-day shut­down, will be reached again on Feb. 7. The Treas­ury De­part­ment can then use spe­cial au­thor­ity — so-called ex­traordin­ary meas­ures — to pre­vent the na­tion from de­fault­ing. These meas­ures briefly al­low the United States to con­tin­ue to meet its ob­lig­a­tions un­til a later date, of­ten re­ferred to as the “drop-dead” dead­line. At that point, the na­tion risks de­fault.

Lew’s em­phas­is on Feb­ru­ary in his Thursday re­marks was a de­par­ture from a let­ter he wrote to House Speak­er John Boehner last month. In that let­ter, the Treas­ury sec­ret­ary said his agency’s au­thor­ity would likely last through “late Feb­ru­ary or early March.”

The un­pre­dict­able nature of tax sea­son makes it tough to fore­cast the ex­act date when Treas­ury will ex­haust these spe­cial meas­ures. In Novem­ber, the non­par­tis­an Con­gres­sion­al Budget Of­fice said that would “prob­ably” hap­pen in March. “However, the tim­ing and mag­nitude of tax re­funds and re­ceipts in Feb­ru­ary, March, and April could shift that date of ex­haus­tion in­to May or June,” CBO said in a re­port on the debt ceil­ing. On Wed­nes­day, Mor­gan Stan­ley eco­nom­ists es­tim­ated the drop-dead date would ar­rive some­where between late March and June.

“We see it as a close call wheth­er this would last only un­til late March or fur­ther in­to the spring, which would be largely de­term­ined by how strong the tax-re­fund sea­son is,” they wrote in a note to cli­ents.

On Thursday, Lew cri­ti­cized the “Wash­ing­ton par­lor sport” of guess­ing when the na­tion will hit the lim­it, and he urged law­makers to act to raise it “as quickly as pos­sible.”

“The buildup to the last minute causes dam­age,” he said. Eco­nom­ists — in­clud­ing those at Treas­ury — of­ten cite slid­ing stocks, lower con­fid­ence, and great­er un­cer­tainty as some of the neg­at­ive ef­fects that can ripple through the eco­nomy as a res­ult of debt-lim­it brink­man­ship.

Rais­ing the debt lim­it has been a polit­ic­ally con­ten­tious is­sue for years, most dra­mat­ic­ally com­ing to a head in Aug. 2011, when a last-minute deal aver­ted de­fault but cost the U.S. its top AAA cred­it rat­ing. Lew, Boehner, and Sen­ate Ma­jor­ity Lead­er Harry Re­id each sep­ar­ately urged law­makers on Thursday to raise the lim­it be­fore a de­fault is near.

“All I know is that we should not de­fault on our debt. We shouldn’t even get close to it,” Boehner told re­port­ers.

In the af­ter­noon, Re­id walked back re­marks he made earli­er Thursday that the debt lim­it prob­ably wouldn’t need to be dealt with un­til April or May. “Sen­at­or Re­id be­lieves that the debt ceil­ing should be dealt with as soon as pos­sible,” spokes­man Adam Jentleson said in a state­ment.

The out­lines of the next round of debt-ceil­ing talks are still tak­ing shape on Cap­it­ol Hill. The White House has said it would be un­will­ing to ne­go­ti­ate on the debt ceil­ing, mean­ing it would not play ball with Re­pub­lic­ans who want to use an agree­ment to hike the bor­row­ing lim­it as lever­age for oth­er is­sues. Re­id said the same on Thursday.

But early next month, Sen­ate Re­pub­lic­ans are ex­pec­ted to in­clude the goal of achiev­ing some sort of con­ces­sions over gov­ern­ment spend­ing through the up­com­ing debt-lim­it talks in the 2014 strategy they sketch out at their an­nu­al re­treat. And so the debt lim­it risks be­com­ing a con­gres­sion­al stick­ing point once more.

Contributions by Michael Catalin

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