As the federal debt limit brings a disastrous government default ever closer, Congress will turn to the Treasury Department for the one thing it cannot deliver: a precise deadline.
House lawmakers this week are scheduled to vote on an increase in the debt ceiling, with no likelihood of passage in the 50-50 Senate assuming Republicans vote en masse against it. That leaves the Treasury on track to run out of cash, as Secretary Janet Yellen has said, “sometime in October.”
Given the massive economic and financial disruption that a U.S. payments default would cause, a drop-dead date for the Treasury running out of cash would offer lawmakers — whether Democrats on their own or in concert with the GOP — the ultimate prod to action.
“It has to get to Code Orange,” said Representative Jimmy Gomez, a California Democrat.
But there won’t be any advance ‘Code Orange’ from the Treasury. Former officials explain that, because of the volatility in U.S. government cash flows, it would be nearly impossible, and politically risky, for Yellen to give lawmakers a date for when the Treasury will run out of its so-called extraordinary measures to avoid breaching the limit.
“Honest to god, you just don’t know,” said James Clark, who was the Treasury’s deputy assistant secretary for federal finance during a 2013 episode when Congress took the debt-limit debate to the brink. “Tens of billions of dollars can swing unexpectedly. Everyone knows there’s uncertainty. The whole thing is ridiculous.”
Long-time bond market analyst Lou Crandall at Wrightson ICAP’s latest estimate is for the Treasury to exhaust its fiscal resources on Oct. 25 or 26. “The range of uncertainty around our modal estimate narrows a little with each new data point but — with a month still to go — remains quite wide in absolute terms,” Crandall wrote in a note Monday.
Effectively, lawmakers are headed for a cliff they cannot see clearly — and the cliff is moving. Should the government run over it, the U.S. would default on its financial obligations. Social Security checks would stop, federal contractors would go unpaid and — in a potentially disastrous move for global financial markets — investors in Treasury securities wouldn’t receive interest payments or get back their principal on maturing bills, notes and bonds.
The resulting chaos, Yellen warned this month, would cause “irreparable damage to the U.S. economy and global financial markets.”
Democrats could have raised the debt ceiling already by using a method that required a simple majority in both houses, bypassing the filibuster — which otherwise needs 10 Republican votes in the Senate. But House Speaker Nancy Pelosi highlighted in a letter to Democratic colleagues Sunday that “Since 2011, every time the debt limit has needed to be raised, Congress has addressed it on a bipartisan basis, including three times during the last administration.”