WASHINGTON – The showdown is coming sooner than expected.
Treasury Secretary Jacob Lew has officially notified congressional leaders that the federal government likely will reach the $16.7 trillion debt limit by mid-October, at which time U.S. will find itself unable to borrow the money needed to pay its debts unless Congress acts to raise the ceiling.
There was some hope that the anticipated debate over the debt limit, expected to prove difficult, could be delayed until November, especially since lawmakers aren’t scheduled to return to Washington from their August recess until Sept. 9 and must first consider a continuing resolution to fund government operations beyond Oct. 1 – providing little time to work out a deal.
In his notification letter dated Aug. 26, Lew told House Speaker John Boehner (R-Ohio) and Senate Democratic Leader Harry Reid, of Nevada, among others that failure to increase the government’s borrowing power “would cause irreparable harm to the American economy.”
“Protecting the full faith and credit of the United States is the responsibility of Congress because only Congress can extend the nation’s borrowing authority,” Lew wrote.
Speaking to members of the Commonwealth Club of California in Mountain View last month, Lew emphasized the importance of quick congressional action in addressing the debt limit question to avoid the economically harmful consequences of a U.S. default or threat of default. He also cautioned that tax revenues and expenditures are inherently unpredictable, rendering it difficult for Treasury to predict with any degree of precision when the government might run out of time.
“We cannot afford for Congress to wait until some unknowable last minute to resolve this matter on the eve of a deadline,” Lew said. “We cannot afford another unnecessary self-inflicted wound.”
If Congress fails to raise the debt ceiling in time, the federal government would hold only about $50 billion in cash to pay its bills on a daily basis. Lew noted that the debt limit has nothing to do with new federal spending.
“It has to do with spending that Congress has already approved and bills that have already been incurred,” he said. “Failing to raise the debt limit would not make these bills go away. It would, though, have disastrous effects for our nation.”
Raising the debt limit, once a formality, has been transformed in recent years into a battle royal, with Republicans insisting on deep spending cuts and other austerity measures in order to gain their support.
The situation is no different this go-round. Boehner has made it clear that GOP lawmakers, who control the House, expect deep spending cuts in exchange for raising the ceiling. Appearing at a fundraiser for Rep. Mike Simpson (R-Idaho) in Boise on Aug. 26, Boehner in fact said he anticipates “a whale of a fight” over any debt ceiling measure.
“I’ve made it clear that we’re not going to increase the debt limit without cuts and reforms that are greater than the increase in the debt limit,” Boehner said in remarks first reported by the Idaho Statesman. “The president doesn’t think this is fair, thinks I’m being difficult to deal with. But I’ll say this — it may be unfair but what I’m trying to do here is to leverage the political process to produce more change than what it would produce if left to its own devices.”
The last debt ceiling battle occurred in 2011, a process that roiled financial markets and led Standard & Poor’s to downgrade the credit rating on U.S. bonds from AAA to AA+.
That confrontation was finally resolved when the White House and congressional Republicans agreed to the creation of a “supercommittee” to come up with budget cuts totaling $1.2 trillion. The panel’s failure resulted in a series of across-the-board spending cuts. Now the GOP wants more.
“I wish I could tell you it was going to be pretty and polite and it would all be finished a month before we’d ever get to the debt ceiling,” Boehner said, according to the Statesman. “Sorry, it just doesn’t work that way.”
Boehner said the difficult steps are necessary to assure that “we’re not going to inflict all of this pain and suffering on our kids and our grandkids.”
President Obama, on the other hand, has repeatedly said he doesn’t intend to play games with lawmakers and insisted they raise the limit so the government can meet its obligations. Furthermore, the Federal Reserve has warned continued brinkmanship over the issue likely will harm the nation’s already tentative economic recovery.
White House Press Secretary Jay Carney said the administration’s position is “unequivocal — we will not negotiate with Republicans in Congress over Congress’s responsibility to pay the bills that Congress has racked up, period.”
Federal spending isn’t likely to be the only hot button issue broached during the debt ceiling debate. Some Republicans are urging that the administration’s request be used as a tool to kill Obamacare.
While lawmakers like Sen. Mike Lee (R-Utah) and Sen. Ted Cruz (R-Texas) are urging that the Affordable Care Act simply be defunded as part of a continuing resolution to fund the federal government at the outset of the fiscal year, some maintain broaching it as part of the debt ceiling negotiations would prove more efficient.
GOP leaders have exhibited reluctance about a continuing resolution strategy, asserting it could lead to political problems if it forced a governmental shutdown. In a conference call with House Republicans last month, Boehner made it clear he doesn’t intend to stand in the way of a temporary spending measure but he displayed aggressiveness on the debt limit.
That means if Obamacare comes up at all, it will be embroiled in the debate over raising the ceiling.
The federal government actually hit the debt ceiling in May, but “extraordinary measures” taken by the Treasury Department have kept things running. That effort was aided when Fannie Mae and Freddie Mac, the government’s two secondary mortgage giants, came through with $60 billion as partial payment for bailout funds resulting from the subprime mortgage crisis of 2008.