In a ritual that has become depressingly familiar to anyone who pays attention to U.S. fiscal policy, Treasury Secretary Jack Lew on Thursday afternoon sent a letter to Congressional leaders warning them that the U.S. government will run out of money sometime on or around November 5.
Unless Congress authorizes additional borrowing by the government (i.e. raising the limit on federal borrowing above the current “debt ceiling,”) the United States would be forced to default on its financial obligations for the first time in its history at some point after that date.
Letters from Lew and his predecessor Timothy Geithner about looming default and the catastrophic effects of a failure of the United States government have become a standard part of negotiations between the administration of President Barack Obama and a Congress controlled, in whole or in part, by Republicans.
But the announcement by Treasury on Thursday was a particular surprise, because the consensus – and Treasury’s prior estimate – had placed the drop-dead date for increasing the department’s borrowing capacity at some time in early-to-mid December.
The accelerated timeframe is particularly awkward because Speaker of the House John Boehner is set to hand over the gavel and retire at the end of October. That means he can attempt to either negotiate a debt ceiling increase prior to his departure, or leave his successor with five days or less to negotiate a deal that in recent years has taken months to complete.
In his letter, Lew explained why the limit now looks as though it will be reached earlier than originally forecast. Looking at tax receipts from September, he explained, the government simply isn’t taking in as much money as expected.
“Based on this new information, we now estimate that Treasury is likely to exhaust its extraordinary measures on or about Thursday, November 5,” Lew wrote. “At that point, we would be left to fund the government with only the cash we have on hand, which we currently forecast to be below $30 billion. This amount would be far short of net expenditures on certain days, which can be as high as $60 billion. Moreover, given certain payments that are due in early to mid-November, we anticipate that our remaining cash would be depleted quickly. Without sufficient cash, it would be impossible for the United States of America to meet all of its obligations for the first time in our history.”
The spending that would push the Treasury over the limit has already been approved by lawmakers in budget and appropriations legislation. This means that Congress has, in effect, obligated the government to spend money, but hasn’t provided the funds it needs to make good on those obligations.
So, as he has done in the past, Lew attempted to place the onus on Congress to preserve the creditworthiness of the U.S. government.
“Protecting the full faith and credit of the United States is the responsibility of the United States Congress,” he wrote. “There is no way to predict the catastrophic damage that default would have on our economy and global financial markets. Moreover, we have learned from previous debt limit impasses that failing to act until the last minute and engaging in partisan brinksmanship can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States.”
Debt limit showdowns have produced some of the most epic standoffs in recent U.S. political history, and the fact that a lame-duck speaker of the House might now have to negotiate one with a president largely abhorred by the same caucus that just last week forced that speaker’s resignation, creates a whole new level of drama.
It also poses an interesting dilemma for current House Majority Leader Kevin McCarthy, the California Republican who is favored to take over the speakership from Boehner.
As soon as next Thursday, when House leadership elections have been scheduled, McCarthy could find himself the speaker-elect. However, Boehner’s staff has indicated that their boss has no plans to resign until the end of the month. That means that if McCarthy gains the support of enough members of his party, he could find himself in the awkward position of having to take a back seat to Boehner during debt ceiling negotiations in which many of his future legislative constituents will likely oppose the current speaker.
This could play out in any number of ways, but there are two outcomes that seem most likely.
First, Boehner could construct a deal to extend the debt limit for a considerable amount of time, using support from House Democrats to get it passed. This would free McCarthy from the responsibility to deal with the issue on short notice.
However, given the reluctance of GOP House members to allow the federal government to borrow more money, and their current sense of authority after having forced Boehner’s resignation, there would likely be pressure on McCarthy to push back against such a deal, even before he takes up the speaker’s gavel.
Second, Boehner could bail. An accelerated debt ceiling calendar doesn’t seem to have been part of his calculus when he announced his end-of-October resignation. The long-serving Ohioan might just decide that waiting until the end of the month just isn’t worth it, and that saddling his successor with a deal considered poisonous by many in their caucus is no favor at all.
This, of course, would leave the relatively inexperienced McCarthy to begin his speakership with one of the most bruising political fights he is likely to ever experience.
For McCarthy, it could be the equivalent of walking into the prison yard and picking a fight with the biggest, meanest guy around. If he wins, people will think twice about taking him on in the future. If he loses, he wouldn’t likely be speaker for very long.