The Debt Ceiling Could Hit Sooner Than Anyone Thinks

Default would be a disaster. So why does no one know when it’d happen?

No one truly enjoys a debt limit fight.
National Journal
Patrick Reis and Matt Berman
Aug. 27, 2013, 2 a.m.

The debt ceil­ing is a time bomb with a faulty timer: All of Wash­ing­ton sees it tick­ing to­ward de­fault, but nobody knows ex­actly when it will ex­plode.

In a let­ter to House Speak­er John Boehner, Treas­ury Sec­ret­ary Jac­ob Lew pro­jec­ted that the de­part­ment’s “ex­traordin­ary meas­ures” cur­rently be­ing taken to avoid de­fault will be “ex­hausted in the middle of Oc­to­ber.” From there, Lew writes, the United States would have only whatever cash Treas­ury has on hand, es­tim­ated to be about $50 bil­lion. Lew calls that po­ten­tial situ­ation “un­ac­cept­able.”

But Lew, like every­one else, is just work­ing off his de­part­ment’s best guess.

Treas­ury doesn’t get to pick a date for de­fault. Rather, the de­part­ment is sub­ject to the ebb and flow of gov­ern­ment rev­en­ues and ex­pendit­ures. And those fig­ures are any­thing but pre­dict­able, be­cause how much the gov­ern­ment owes its cred­it­ors on a giv­en day — and how much cash it has to pay them — is based on a host of volat­ile eco­nom­ic, leg­al, and polit­ic­al factors.

“It’s very dif­fi­cult to tell, par­tic­u­larly this far out,” when ex­actly Treas­ury would have to de­fault on its debts, said Steve Bell of the Bi­par­tis­an Policy Cen­ter. “Oc­to­ber is an ex­tremely lumpy month. Some days, there’s cash com­ing in; oth­er days, there’s cash go­ing out.”

And that un­pre­dict­ab­il­ity makes an ac­ci­dent­al de­fault all the more likely, Bell said, even if neither side wants it to hap­pen.

“That’s the danger. It’s not that some­body plans to do this,” he said. “It’s that this is the time when it’s very, very easy for mis­takes to get made.”

Bell, a former top Re­pub­lic­an staffer on the Sen­ate Budget Com­mit­tee, cited a host of ex­tern­al factors that could shift Treas­ury’s de­fault date. Chief among them: an un­ex­pec­ted mil­it­ary ac­tion that would cost bil­lions daily, such as the one many are call­ing on the Obama ad­min­is­tra­tion to un­der­take in Syr­ia.

An­oth­er big ques­tion is wheth­er Treas­ury can delay cer­tain in­ter­gov­ern­ment­al pay­ments — such as con­tri­bu­tions to the Medi­care and So­cial Se­cur­ity trust funds — without run­ning afoul of leg­al chal­lenges. That is an open ques­tion, Bell said. “I don’t know, and I just don’t think any­body knows,” he said. “It has nev­er been tested be­fore.”

Even the stand­ard daily vari­ation in the num­ber of bills Treas­ury deals with could change the equa­tion, Bell said. “They do five [mil­lion] to 10 mil­lion trans­ac­tions a day. A lot are big ones from De­fense; a lot are tiny from repair­men. They are clumpy, and you put a few to­geth­er, all of a sud­den you’re talk­ing about” $4 bil­lion to $6 bil­lion.

The “middle Oc­to­ber” dead­line came about un­der ar­ti­fi­cial cir­cum­stances to be­gin with. In the be­gin­ning of this year, fa­cing the “fisc­al cliff,” Con­gress made a deal to put off a deal on the debt lim­it un­til May 19. At that point, Lew told Con­gress he was be­gin­ning the “stand­ard set of ex­traordin­ary meas­ures” to keep the gov­ern­ment fun­ded. It’s those meas­ures that will run out some­time this fall.

In the sum­mer of 2011, the U.S. al­most found out ex­actly what hap­pens when Treas­ury hits the ceil­ing. Look­ing at an early-Au­gust dead­line, Con­gress was able to come to a deal to avert a de­fault crisis only at the last minute. So what would have happened if that had fallen through? Un­able to bor­row money, by Au­gust, the Treas­ury De­part­ment would have been un­able to pay al­most half of its 80 mil­lion monthly pay­ments. Based on how the de­part­ment de­cided to pri­or­it­ize pay­ments, that could have in­cluded checks to the 29 mil­lion So­cial Se­cur­ity re­cip­i­ents that were due to go out on Aug. 3. By that date, Treas­ury would have already had an es­tim­ated cash de­fi­cit of about $20 bil­lion.

And it’s not as if all of the hor­rors of 2011 were aver­ted. Ac­cord­ing to a Gov­ern­ment Ac­count­ab­il­ity Of­fice re­port, just the delay in com­ing to a debt-lim­it deal alone res­ul­ted in a $1.3 bil­lion in­crease in Treas­ury’s bor­row­ing costs for fisc­al 2011.

As squishy as the dead­line date is, it’s really just a product of the mal­le­able law that birthed it. Con­gress cre­ated the debt lim­it in 1939 in the run-up to World War II, largely as a means of giv­ing Treas­ury a high­er bor­row­ing lim­it with more flex­ib­il­ity to help the war ef­fort — a sur­pris­ing ori­gin for a law that has be­come Con­gress’s prin­cip­al point of lever­age for ex­tract­ing spend­ing cuts from the Obama ad­min­is­tra­tion.

What We're Following See More »
GOP Budget Chiefs Won’t Invite Administration to Testify
1 days ago

The administration will release its 2017 budget blueprint tomorrow, but the House and Senate budget committees won’t be inviting anyone from the White House to come talk about it. “The chairmen of the House and Senate Budget committees released a joint statement saying it simply wasn’t worth their time” to hear from OMB Director Shaun Donovan. Accusing the members of pulling a “Donald Trump,” White House spokesman Josh Earnest said the move “raises some questions about how confident they are about the kinds of arguments that they could make.”

Snowstorm Could Impact Primary Turnout
1 days ago

A snowstorm is supposed to hit New Hampshire today and “linger into Primary Tuesday.” GOP consultant Ron Kaufman said lower turnout should help candidates who have spent a lot of time in the state tending to retail politicking. Donald Trump “has acknowledged that he needs to step up his ground-game, and a heavy snowfall could depress his figures relative to more organized candidates.”

A Shake-Up in the Offing in the Clinton Camp?
21 hours ago

Anticipating a primary loss in New Hampshire on Tuesday, Hillary and Bill Clinton “are considering staffing and strategy changes” to their campaign. Sources tell Politico that the Clintons are likely to layer over top officials with experienced talent, rather than fire their staff en masse.

Trump Is Still Ahead, but Who’s in Second?
8 hours ago

We may not be talking about New Hampshire primary polls for another three-and-a-half years, so here goes:

  • American Research Group’s tracking poll has Donald Trump in the lead with 30% support, followed by Marco Rubio and John Kasich tying for second place at 16%. On the Democratic side, Bernie Sanders leads Hillary Clinton 53%-41%.
  • The 7 News/UMass Lowell tracking poll has Trump way out front with 34%, followed by Rubio and Ted Cruz with 13% apiece. Among the Democrats, Sanders is in front 56%-40%.
  • A Gravis poll puts Trump ahead with 28%, followed by Kasich with 17% and Rubio with 15%.