The Debt Ceiling Could Hit Sooner Than Anyone Thinks
Default would be a disaster. So why does no one know when it'd happen?
By Patrick Reis and Matt Berman / Hot Air
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.
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.