Cut the Debt Ceiling Debate, Bills are Coming Due

Cut the Debt Ceiling Debate, Bills are Coming Due

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The Treasury isn’t kidding when it says it’s close to the $14.294 trillion debt limit. At the close of business Monday, the government debt subject to the limit stood at $14.293975 trillion. That is, Treasury still had room to borrow a paltry $25 million, according to the most recent daily Treasury statement.
 

Actually, Monday was a pretty good day. Treasury took in $15.3 billion of various tax payments, mostly from businesses depositing withheld income and payroll taxes, while paying out just $11.2 billion for Medicare providers, federal employees, workers’ unemployment benefits, food stamps, highway aid and the like. 

That means Treasury’s operating cash balance rose by $4.1 billion, to $88.5 billion.

As a number of analysts have pointed out, Treasury won’t have blown through that cash by Aug. 2, the day by which Treasury Secretary Timothy F. Geithner has said the debt limit must be raised. But without such an increase, the government is living strictly on its cash flow, and on most days far more is flowing out than flowing in.

Some members of Congress, including Rep. Michele Bachmann, R-Minn., who is seeking the Republican presidential nomination, have said the Treasury has enough money coming in to pay interest on the debt and Social Security benefits, so there’s no reason for a default on the debt. After all, there is a Social Security trust fund with a big balance, isn’t there? Yes, but the trust fund holds Treasury debt, not cash. The Treasury can “prioritize” other payments, she said.

Well, on Monday Treasury paid out $228 million for postal money orders that had been cashed. Should those not be honored in the future? The biggest category of payments on Monday was $1.755 billion paid electronically to defense vendors. The Department of Homeland Security got $55 million for emergency preparedness and response programs. Farmers and other participants in Commodity Credit Corporation programs got $27 million. 

I wonder who Bachmann and other opponents of a debt limit increase would choose to pay first. Someone in Asia providing gasoline for the U.S. military in Afghanistan? Farmers in her district? Doctors billing Medicare?

Meanwhile, Treasury continues to issue new securities—it is selling $99 billion worth of two-, five- and seven-year notes this week--not to raise new money, but to allow it to pay off maturing ones. To make room for this week’s note issues, Treasury gradually cut back on sales of T-bills -- securities maturing in a year or less.

The true drop dead date for being able to pay all bills is probably Aug. 15, the day Treasury has to shell out $30.6 billion in interest payments on outstanding notes and bonds. Treasury--and the nation--can’t afford to draw its cash balance down to nothing. Having nothing available to pay for a sudden emergency is really scary.

But that is where the anti-tax, small-government zealots would leave us.

covered the Federal Reserve and the economy for 25 years at the Washington Post before joining Bloomberg News in 2004. In 2009 he began writing freelance pieces for, among others, Thomson Reuters, and is widely recognized for his ability to interpret the Fed.