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
Patrick Reis 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 »
Priebus Asks Party to Unite Behind Trump
7 hours ago
Sanders Upsets Clinton in Indiana
8 hours ago

Despite trailing Hillary Clinton by a significant margin, Bernie Sanders wasn't going the way of Ted Cruz tonight. The Vermont senator upset Clinton in Indiana, with MSNBC calling the race at 9pm. Sanders appears poised to win by a five- or six-point spread.

Ted Cruz Bows Out, Effectively Ceding the Contest to Trump
9 hours ago

And just like that, it's over. Ted Cruz will suspend his presidential campaign after losing badly to Donald Trump in Indiana tonight. "While Cruz had always hedged when asked whether he would quit if he lost Indiana; his campaign had laid a huge bet on the state." John Kasich's campaign has pledged to carry on. “From the beginning, I’ve said that I would continue on as long as there was a viable path to victory,” said Cruz. “Tonight, I’m sorry to say it appears that path has been foreclosed."

Trump Wins Indiana, All but Seals the Nomination
9 hours ago

The Republican establishment's last remaining hope—a contested convention this summer—may have just ended in Indiana, as Donald Trump won a decisive victory over Ted Cruz. Nothing Cruz seemed to have in his corner seemed to help—not a presumptive VP pick in Carly Fiorina, not a midwestern state where he's done well in the past, and not the state's legions of conservatives. Though Trump "won't secure the 1,237 delegates he needs to formally claim the nomination until June, his Indiana triumph makes it almost impossible to stop him. Following his decisive wins in New York and other East Coast states, the Indiana victory could put Trump within 200 delegates of the magic number he needs to clinch the nomination." Cruz, meanwhile, "now faces the agonizing choice of whether to remain in the race, with his attempt to force the party into a contested convention in tatters, or to bow out and cede the party nomination to his political nemesis." The Associated Press, which called the race at 7pm, predicts Trump will win at least 45 delegates.

What’s the Average Household Income of a Trump Voter?
14 hours ago

Seventy-two thousand dollars, according to FiveThirtyEight. That's higher than the national average, as well as the average Clinton or Sanders voter, but lower than the average Kasich voter.