Mark your calendars: After tomorrow (May 18), the US Treasury can’t borrow any more money to fund already-authorized spending until Congress increases the debt limit. And you may remember that when the US runs out of cash, we end up on a very complicated and worrisome path, one that could end in a global financial meltdown.
It’s the kind of situation that has Treasury secretary Jack Lew telling people he will begin the Orwellian task of “implementing the standard set of extraordinary measures.” Why are these measures extraordinary? Because they’re meant to ward off insolvency—mostly by suspending payments to pension funds and other deferrable bills to keep as much cash on hand as possible, as long as possible. Why are they standard? Because they’ve been used four times in the last four years.
The real deadline for raising the debt limit comes when those extraordinary measures run out. According to the Bipartisan Policy Center, which maintains a model of the government balance sheet, that date is likely to come in October 2013.
So what’s keeping Congress from raising the debt ceiling? House Republicans, who don’t want any more debt on the public balance sheet unless they get the cuts to taxes and welfare spending they want. But the latest news from the green eye-shade guys in Washington is that the deficit is falling faster than it did after World War II—almost worryingly fast—and debt, after climbing just a little bit more, is set to stabilize over the next decade:
That has taken some of the juice out of the Republicans’ usual threat, namely that they will force a default unless the Democrats agree to plans to reduce the debt. Instead, Republicans have turned this into a debate about the goal of tax reform. Both sides agree, broadly speaking, that tax reform should close tax loopholes. But Democrats want to use the savings from doing so to lower overall tax rates and cut the deficit; Republicans simply want lower rates. And it’s still not clear if exchanging tax reform for lifting the debt ceiling will satisfy conservative Republicans, who would rather see dramatic spending cuts attached to any increase in borrowing.
But that’s just talk for now, since President Obama has said once again that he won’t negotiate about raising the debt ceiling. That policy sort-of worked in February, when Congress passed the debt ceiling suspension that expires tomorrow, with only the condition that both chambers of the US legislature pass a budget. Now, Republicans are refusing to begin negotiations on that budget. Another summer of fiscal politics looms, with a proper October surprise at the end.