The date is fast approaching when the United States risks finding itself in default on its debt.
The US Treasury is running out of money because it is facing the statutory debt limit, setting up a ticking clock for a constitutional crisis just as the legislature is going off the rails.
The law requires that Congress authorize all public borrowing, and lawmakers typically increase the limit in conjunction with the need created by their spending decisions. But if that authorization fails to materialize soon, the US will run out of liquid assets—sometime between Nov. 10 and Nov. 19, according to a Bipartisan Policy Center analysis of expected tax receipts and scheduled payments:
Treasury secretary Jack Lew warned lawmakers last week that the Treasury would exhaust its ability to borrow around Nov. 5, and soon after run out of money entirely as bills exceed incoming receipts.
A default would rattle global markets and potentially spark all kinds of trouble; a near-default in 2011 resulted in the country’s sterling credit rating being downgraded by ratings firms, and had noticeable effects on the real economy.
The results of an actual default are hard to predict, but a financial crisis caused by the failure of one of the world’s most reliable financial assets and a recession caused by the evaporation of government spending aren’t out of the question.
While the debt ceiling was originally designed to make it easier for the government to borrow, it has become, since 2010, an opportunity for dangerous brinksmanship. Conservatives in Congress have sought to use the adverse consequences of a default to push through policies that otherwise would die due to political opposition, similar to their threat of shutting down the government, only with far worse consequences.
Political procrastination tends to link spending bills and the debt ceiling, which doesn’t help to communicate the distinction between the debt ceiling—which concerns previous fiscal choices—and the decision to approve new spending. Just look at GOP presidential contender Ben Carson, who clearly failed to understand this nuance during a recent Marketplace interview.
So far, the bond markets are not signaling concern about the debt limit; since a 2012 budget accord between the two parties, the risk of fiscal brinksmanship has been minimized, and investors may believe politicians are too savvy to allow such a battle to distract from 2016 electioneering.
But chaos in the House Republican caucus could make it harder to reach a solution. The Obama administration and Democrats in Washington are hopeful that a long-term solution can be crafted before John Boehner steps down as speaker of the House in October, but it may be impossible to reach a deal with the future leadership of the caucus so unsettled: The leading candidate to replace Boehner, majority leader Kevin McCarthy, said today (Oct. 8) that he would no longer seek the post.
The first task for the next leader will be uniting a fractious caucus around a compromise most find unpalatable. Unsurprisingly, few candidates are stepping up to embrace the task. The uncertainty around the future leader of the House doesn’t bode well for a quick debt-ceiling solution.