How Syria, a Hurricane, or Ben Bernanke Could Move the Debt-Ceiling Deadline

4 possible paths to an early default.

From hurricanes to monetary policy, there are plenty of events beyond the Treasury Department's control.
National Journal
Matt Berman Patrick Reis
Aug. 27, 2013, 9:23 a.m.

Dead­locked over a deal to raise the debt ceil­ing, Con­gress and the White House are flirt­ing with a fed­er­al de­fault. But that’s not the worst of it: Be­cause the ex­act date of de­fault is un­cer­tain, any num­ber of un­fore­seen events could push our fed­er­al fin­ances over the edge.

Treas­ury Sec­ret­ary Jac­ob Lew told Con­gress on Monday that the gov­ern­ment is likely to de­fault on its debts by mid-Oc­to­ber un­less the debt lim­it is raised. But mid-Oc­to­ber could just as eas­ily be early Oc­to­ber. Or it could be late Septem­ber. Or Treas­ury’s ex­traordin­ary meas­ures may, as some ana­lysts are still pre­dict­ing, stave off de­fault un­til Novem­ber.

Set­ting an ex­act de­fault date is dif­fi­cult, if not im­possible, be­cause the gov­ern­ment’s day-to-day fin­ances are dic­tated by a wildly un­pre­dict­able cock­tail of polit­ic­al, eco­nom­ic, and nat­ur­al forces. Here are a few hy­po­thet­ic­als that could buy Con­gress more time — or trig­ger de­fault more quickly than any­one saw com­ing.

Syr­ia

Few events wreak more hav­oc than mil­it­ary in­ter­ven­tions. Fed­er­al budgets, of course, do not es­cape un­scathed. And now it’s look­ing like there’s a de­cent chance there will be some form of U.S. in­ter­ven­tion in Syr­ia.

Such an in­ter­ven­tion, even if it’s just a tar­geted mis­sile strike, could cost bil­lions of dol­lars and al­ter the debt-lim­it timeline. In Ju­ly, Joint Chiefs of Staff Chair­man Mar­tin De­mp­sey told Con­gress that the cost of tar­geted strikes against Bashar al-As­sad’s mil­it­ary “would be in the bil­lions” and that just in­sti­tut­ing a no-fly zone over the coun­try would cost about $1 bil­lion a month.

One oth­er way of think­ing about the pos­sible cost of tar­geted strikes is to look back to the 1999 NATO re­sponse to eth­nic cleans­ing in Kosovo, which the Obama ad­min­is­tra­tion is re­portedly cit­ing as a “pre­ced­ent” for a pos­sible Syr­ia cam­paign. NATO con­duc­ted strikes on Ser­bia for 78 days start­ing in March, at a cost to the U.S. of about $5 bil­lion (not ad­jus­ted for in­fla­tion) through Septem­ber 1999.

Act of God

By late Novem­ber of last year, New Jer­sey Gov. Chris Christie es­tim­ated that su­per­storm Sandy had cost his state $36.8 bil­lion after mak­ing land­fall in Oc­to­ber. Around the same time, New York Gov. An­drew Cuomo was ask­ing for $41 bil­lion in fed­er­al aid for his state, with $15 bil­lion go­ing to New York City alone.

After months of ar­guing, Con­gress ap­proved a $50.5 bil­lion aid pack­age in Janu­ary. That’s a bit more than the amount of money the Treas­ury ex­pects to have on hand come mid-Oc­to­ber. And we’re about to hit peak hur­ricane and trop­ic­al-storm sea­son.

A massive storm or hur­ricane isn’t likely to drastic­ally (or quickly) al­ter the Treas­ury’s debt-ceil­ing es­tim­ate, and Sandy was surely something of an out­lier. It would have to be a “pretty big” storm to make a siz­able dif­fer­ence, says the Bi­par­tis­an Policy Cen­ter’s Steve Bell, and Sandy was one of the biggest ever. But when every bil­lion counts, an un­ex­pec­ted act of God could make the dead­line rush up just a bit quick­er.

Act of Bernanke

It’s the eco­nomy, stu­pid. The strength of the U.S. eco­nomy largely dic­tates how much tax rev­en­ue hits Treas­ury’s cof­fers, and if the re­cov­ery takes flight this fall, it could buy the gov­ern­ment more time, says Bill Fren­zel, a guest schol­ar at the Brook­ings In­sti­tu­tion.

Eco­nom­ic growth, however, is a double-edged sword be­cause any num­ber of shocks could blow a hole in the re­cov­ery, send­ing tax rev­en­ue crash­ing and ac­cel­er­at­ing the de­fault date. Think back to 2008, when the gov­ern­ment was ex­pect­ing the eco­nomy to keep chug­ging along and provide a steady rev­en­ue stream. But by mid-Oc­to­ber, fin­an­cial firms were col­lapsing, the eco­nomy was con­tract­ing, and a series of con­fid­ent rev­en­ue ex­pect­a­tions ended up be­ing wildly off.

And then there’s Fed­er­al Re­serve Board Chair­man Ben Bernanke, who — with fisc­al policy locked in a per­petu­al stale­mate — ar­gu­ably wields the na­tion’s last policy lever in his cent­ral bank’s mon­et­ary policy. But after years of provid­ing un­pre­ced­en­ted stim­u­lus, Bernanke has been send­ing sig­nals that the bank may soon back off.

That taper­ing could send shock waves through a stock mar­ket that many have long ar­gued is over­due for a con­trac­tion. Giv­en that stocks shuddered in June when Bernanke said the Fed would even­tu­ally taper, provided the eco­nomy stayed strong, the de­cision to peel back on some — but not all — of its stim­u­lus ef­forts would likely set back the eco­nomy and move up the de­fault date.

The Debt-Ceil­ing De­bate It­self

The very pos­sib­il­ity of de­fault could ac­cel­er­ate the debt ceil­ing’s ar­rival. In 2011, in­vestors got jit­tery as the due date drew near and the White House and con­gres­sion­al Re­pub­lic­ans were mired in stale­mate. The Dow dropped nearly 2,000 points from late Ju­ly to mid-Au­gust of that year, a plunge the mar­ket did not undo un­til 2012.

At a time when Treas­ury is scrap­ing for every tax dol­lar, a sim­il­ar mar­ket run could be enough to tip the needle.

There are signs, however, that the mar­ket has been in­ocu­lated against D.C.’s drama. When Con­gress took the coun­try to the edge of the fisc­al cliff in late 2012, mar­kets didn’t budge, prompt­ing many to spec­u­late that in­vestors no longer buy hard-liner bluster and just as­sume a last-minute deal is com­ing.

Either way, Con­gress’s day of reck­on­ing is com­ing, be­cause — ab­sent le­gis­la­tion ex­tend­ing the ceil­ing — no up­com­ing event will long delay de­fault, Fren­zel says.

“I think we’ve taken it just about as far as we can go,” he says. “I wouldn’t ex­pect any mir­acles.”

What We're Following See More »
VERY FEW DEMS NOW REPRESENT MINING COMMUNITIES
How Coal Country Went from Blue to Red
46 minutes ago
WHY WE CARE
STAFF PICKS
History Already Being Less Kind to Hastert’s Leadership
3 hours ago
WHY WE CARE

In light of his recent confessions, the speakership of Dennis Hastert is being judged far more harshly. The New York Times' Carl Hulse notes that in hindsight, Hastert now "fares poorly" on a number of fronts, from his handling of the Mark Foley page scandal to "an explosion" of earmarks to the weakening of committee chairmen. "Even his namesake Hastert rule—the informal standard that no legislation should be brought to a vote without the support of a majority of the majority — has come to be seen as a structural barrier to compromise."

Source:
‘STARTING FROM ZERO’
Trump Ill Prepared for General Election
3 hours ago
THE DETAILS

Even if "[t]he Republican presidential nomination may be in his sights ... Trump has so far ignored vital preparations needed for a quick and effective transition to the general election. The New York businessman has collected little information about tens of millions of voters he needs to turn out in the fall. He's sent few people to battleground states compared with likely Democratic rival Hillary Clinton, accumulated little if any research on her, and taken no steps to build a network capable of raising the roughly $1 billion needed to run a modern-day general election campaign."

Source:
27TH AMENDMENT
Congress Can’t Seem Not to Pay Itself
6 hours ago
WHY WE CARE

Rep. Dave Young can't even refuse his own paycheck. The Iowa Republican is trying to make a point that if Congress can't pass a budget (it's already missed the April 15 deadline) then it shouldn't be paid. But, he's been informed, the 27th Amendment prohibits him from refusing his own pay. "Young’s efforts to dock his own pay, however, are duck soup compared to his larger goal: docking the pay of every lawmaker when Congress drops the budget ball." His bill to stiff his colleagues has only mustered the support of three of them. Another bill, sponsored by Rep. Jim Cooper (D-TN), has about three dozen co-sponsors.

Source:
THE QUESTION
How Far Away from Cleveland is the California GOP Staying?
7 hours ago
THE ANSWER

Sixty miles away, in Sandusky, Ohio. "We're pretty bitter about that," said Harmeet Dhillon, vice chairwoman of the California Republican Party. "It sucks to be California, we're like the ugly stepchild. They need us for our cash and our donors, they don't need us for anything else."

×