Coming soon: Another debt ceiling war

President Trump may want to push his tax reform plan and repeal Obamacare, but before he can do that, Congress must deal with the deadline of March 15.  On that date, a suspension of the debt ceiling is set to expire.  The suspension was part of a budget deal between then-House speaker John Boehner and President Obama that pushed the fiscal day of reckoning beyond the election.

If Congress does nothing – and it probably won't – Treasury Secretary Mnuchin will be forced to get creative in the nation's accounting procedures to avoid a fiscal crisis.

But those measures can only be temporary.  As it looks now, sometime in July, time will run out, and the piper will have to be paid.


On March 15, the latest suspension expires and the debt limit will likely reset a little north of $20 trillion.

If Congress has not voted by mid-March to either extend the suspension or raise the ceiling, Mnuchin will have to start using special accounting measures just to keep paying the country's bills without violating the borrowing limit.

And that task will become increasingly treacherous as the so-called "X" date approaches.

The "X" date is when the special accounting measures are exhausted, at which point Treasury would only be able to pay bills with the revenue coming in. Since the federal government runs deficits every year, that revenue is never sufficient to cover all payments. That's why the Treasury borrows in the first place, to make up the difference.

That's why, contrary to what many conservatives like to say, raising the debt ceiling isn't a "license to spend more." It's more like a license to continue paying what the country already owes.

Those obligations – approved over the years by both parties – include paying bondholders, federal contractors, Social Security recipients, tax filers owed refunds and a vast array of other parties.

If lawmakers don't do something before the "X" date, the United States would default on some of its debts. That could push world markets into a tailspin and send interest rates soaring. It could ruin the sterling credit of the United States, and cause a lot of economic tumult. Not exactly what a Treasury secretary wants to happen on his watch.

Mnuchin will soon have to give lawmakers his best estimate of when the "X" date will be. The Bipartisan Policy Center, an outside think tank, calculates that the extraordinary measures could last through July, possibly a little longer.

While some lawmakers might want to use the debt ceiling debate to get what they want before they approve an increase, Mnuchin said during his confirmation hearing that he'd prefer to skip any drama.

"Honoring the U.S. debt is the most important thing. ... I would like us to raise the debt ceiling sooner rather than later."

Many on the right refuse to believe that not raising the debt ceiling would be calamitous.  Fortunately, we've never tested that theory to its fullest.  But former OMB director under President Reagan David Stockman points out some harsh realities:

I think what people are missing is this date, March 15th 2017.  That's the day that this debt ceiling holiday that Obama and Boehner put together right before the last election in October of 2015.  That holiday expires.  The debt ceiling will freeze in at $20 trillion.  It will then be law.  It will be a hard stop.  The Treasury will have roughly $200 billion in cash.  We are burning cash at a $75 billion a month rate.  By summer, they will be out of cash.  Then we will be in the mother of all debt ceiling crises.  Everything will grind to a halt.  I think we will have a government shutdown.  There will not be Obama Care repeal and replace.  There will be no tax cut.  There will be no infrastructure stimulus.  There will be just one giant fiscal bloodbath over a debt ceiling that has to be increased and no one wants to vote for.

Stockman has become something of an outlier over the last decade, predicting catastrophe that never happens.  Unfortunately, in this case, he is describing a process and not voicing an opinion.  This is what will happen by law, not by anyone's choice.

Trump may recognize the futility of a debt ceiling controversy, given the fact that Congress will be voting on money already spent.  If he is as hard-headed and practical as his supporters claim, he may propose getting rid of the debt ceiling altogether.  If he doesn't, his entire agenda may come a cropper on the issue of debt and how to manage it.

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