You may have missed this because it got lost in all the chaotic insanity last week coming out of Washington, D.C., but Congress just blew past the federal debt ceiling limit it had agreed to suspend until March 2. Congress voted in February 2018 to suspend the debt limit through March 1, 2019, as part of the bipartisan budget deal. The Washington Post reports, Treasury to run out of money in September unless Congress acts, CBO says:
The Treasury Department will probably run out of money to pay the nation’s bills by the end of September unless Congress takes action, the Congressional Budget Office said Tuesday, raising a scenario that could cause financial havoc and shake the foundations of the global economy.
The U.S. government has been spending more money than it brings in for years, forcing the Treasury to borrow money by issuing bonds. But Treasury is allowed to issue only so much debt before it bumps up against the “debt ceiling,” a borrowing limit artificially set by Congress.
Congress had previously agreed to suspend that limit until March 2. But when the limit comes back into effect, Treasury will not technically have the authority to borrow additional funds. … Treasury resorts to what have been dubbed “extraordinary measures” to be able to keep paying the government’s bills — at times for several months after the debt ceiling is reached. But those efforts can keep the bills paid for only so long.
“The length of time that extraordinary measures can last is subject to considerable uncertainty,” Jonathan Blum, a deputy assistant treasury secretary, wrote in a recent letter to Rep. Richard E. Neal (D-Mass.). “Given this uncertainty, Treasury respectfully urges Congress to act as soon as possible to suspend or increase the statutory debt limit and protect the full faith and credit of the United States.”
The Trump administration has not given a specific date when it believes Treasury will run out of money, but the bipartisan CBO report is a widely respected estimate of when real trouble might occur.
“The Treasury will probably run out of cash near the end of this fiscal year or early in the next one,” CBO wrote. The federal government’s fiscal year ends Sept. 30. “If that occurred, the government would be unable to pay its obligations fully, and it would delay making payments for its activities, default on its debt obligations, or both.”
What I see is yet another GOP hostage taking situation for President Trump and Senate Republicans. In recent years, there have been regular government shutdown threats at the end of the fiscal year on September 30, usually ending in a continuing resolution (CR) because Congress cannot complete the federal budget on time. When you add the federal debt ceiling to this mix, you get a volatile situation that can wreck the full faith and credit of the U.S. government, and rock the world economy.
This almost occurred in 2011 when Republicans threatening to not raise the debt ceiling resulted in chaos. “The mere threat not to raise the debt limit caused panic in financial markets and led Standard & Poor’s to downgrade the nation’s credit rating for the first time ever.”
Earlier this year during the Trump Shutdown, the Littlest Rebel “Little Lindsey” Graham (R-SC) suggested that Trump attach the federal debt ceiling and border wall fights. Trump confidant Sen. Lindsey Graham floats tying border wall money to critical debt ceiling increase. Graham told news outlet that he thinks “the president understands we need to raise the debt ceiling. It comes due in March, so why not just expedite things?”
Trump didn’t do it then, but you can bet the Littlest Rebel “Little Lindsey” Graham will be whispering in Trump’s ear again come September.
By tying the two issues together, Trump would hope Democrats would help him fulfill one of his key campaign promises out of an obligation not to cause economic harm. He may believe holding the possibility of a credit downgrade or default over the Democratic leaders would make them more likely to yield to his border wall demand.
The U.S. borrowing authority will run out in March if Congress does not raise the debt ceiling. While the Treasury can use so-called extraordinary measures to stop the government from running out of cash for a few months, failing to increase the borrowing limit could eventually lead to U.S. credit downgrades or even a default on loans.
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If Trump insists on a debt limit increase as part of a deal, he would take a gambit on the health of the American economy. A default would cause cascading damage not only at home but also abroad. A 2011 U.S. credit rating downgrade caused stock market havoc.
“If this is tied to the debt ceiling into the summer, it does increase the pressure on markets over that time. It creates a lot of uncertainty,” said Tom Simons, a money market economist at Jefferies.
Democrats would almost certainly oppose any plan to attach wall funding to the federal debt ceiling.
The Post continues:
Federal Reserve Chairman Jerome H. Powell was asked Tuesday about what would happen to financial markets if Congress does not vote to raise the debt ceiling soon.
“It’s beyond even considering that the United States would not honor all of its obligations and pay them when due,” Powell said. “It is just something that can’t even be considered.”
Powell said merely bumping up against the debt limit creates “a lot of uncertainty” and serves as a “distraction from what is otherwise a pretty good economy.”
The real solution is to do away with the artificial debt ceiling limit and to put an end to these GOP hostage taking situations.
Prominent economists and policymakers on both sides of the aisle have called for the United States to get rid of the debt ceiling altogether. It was meant to be a curb on government spending, but in reality, Congress typically passes budgets that spend more money than the latest debt limit.
The money is already spent, but Congress votes to raise the debt ceiling later, causing potential political and economic crises that leaders of both parties dread.
The other necessary solution is to reverse GOP tax cuts for corporations and the wealthy and to start taking in more tax revenue than the government spends, as occurred during the Clinton years, and begin paying down the national debt again.
Remember when Federal Reserve Chairman Alan Greenspan was worried that the U.S. would pay off the national debt too quickly back in 2001? Yes, this really did happen. Greenspan testified:
[Mr. Greenspan] said the government faces the real possibility that a wave of surpluses will wipe out the $3.4 trillion national debt held by the public within a decade and then leave Washington with hundreds of billions of dollars a year in excess revenue on its hands.
Mr. Greenspan said he particularly feared that if taxes were not cut, the government would end up using the surplus to buy stocks and bonds, a prospect at odds with his philosophy that the government should play a minimal role in private enterprise.
”I never expected to see the day where I would be talking about anything other than reducing the debt,” Mr. Greenspan told the Senate Budget Committee on Thursday. ”I am running into the tyranny of zero, which is where you can’t reduce it any more. And so, have my views changed? Yes, they’ve changed; they have to change.”
Greenspan’s support for George W. Bush’s tax cuts for corporations and the wealthy is what set us on the path to the $22 trillion dollar national debt that we have today — up from the manageable $3.4 trillion national debt in 2001. GOP “trickle down” tax policy has never paid for itself, and has never been good for average Americans. America’s critical needs are not being met, infrastructure for example. We are not spending too much, we are taxing corporations and the wealthy too little. We have a revenue deficit because of GOP tax policy.