Treasury Could Run Out of Cash in December: CBO

By Yuval Rosenberg

It’s
only Tuesday. In this case, though, that might be a good
thing since it means lawmakers still have a bit more time to deal
with that daunting to-do list we told you about yesterday. They
haven’t gotten off to a good start, though, as the annual defense
bill has
stalled in the Senate.

Here’s what else is going on.

Treasury Could Run Out of Cash in December:
CBO

Lawmakers don't have much time to avoid a U.S. debt default —
and the deep recession that could follow.

Echoing recent warnings from Treasury Secretary Janet Yellen,
the Congressional Budget Office said Tuesday that the U.S. Treasury
faces the risk of default in a matter of weeks if Congress fails to
raise or suspend the federal debt ceiling.

The Treasury has already bumped up against the current debt
limit of $28.9 trillion and is taking what it calls extraordinary
measures to continue to meet the country’s financial obligations.
As required by the infrastructure legislation recently signed into
law, the Treasury must make a payment of $118 billion to the
Highway Trust Fund by December 15, CBO noted, and that payment
could soon force the Treasury to delay or default on other
payment.

“If the debt limit remained unchanged and if the Treasury made
that transfer in full, the government’s ability to borrow using
extraordinary measures would be exhausted soon after it made the
transfer,” the CBO said. “In that case, the Treasury would most
likely run out of cash before the end of December.”

Yellen warns again: Appearing before the Senate Banking
Committee on Tuesday, Yellen said that while the economic recovery
from the Covid-19 crisis is “on track,” failing to raise the debt
limit could be disastrous.

“I cannot overstate how critical it is that Congress address
this issue. America must pay its bills on time and in full. If we
do not, we will eviscerate our current recovery,” Yellen said in
prepared remarks. “In a matter of days, the majority of Americans
would suffer financial pain as critical payments, like Social
Security checks and military paychecks, would not reach their bank
accounts, and that would likely be followed by a deep
recession.”

Talks in the Senate: The main obstacle to dealing quickly
with the debt ceiling is the block of Republicans in the Senate,
who have vowed to filibuster any attempt by Democrats to raise the
limit on their own. Instead, Republicans want Democrats to use the
reconciliation process to raise the limit, which Democrats says is
just a strategy to eat up valuable floor time while generating
plenty of material for negative GOP ads to be used in the 2022
midterm elections.

Although Senate Minority Leader Mitch McConnell (R-KY) has taken
a hard line on the matter in the past, his position may be
softening. Punchbowl News
reports that McConnell seemed less confrontational
when discussing the debt ceiling on Monday. “We’re still talking
about that,” McConnell said when asked about his recent
conversations with Senate Majority Leader Chuck Schumer (D-NY) on
the issue.

Schumer also spoke in relatively positive terms, saying he had a
“good conversation” with McConnell about raising the debt ceiling.
“The talks between Schumer and McConnell are a notable shift from
October, where the two regularly traded fire as they dug into their
positions,”
said The Hill’s Jordain Carney.

One possible compromise: An option that appears to be
gaining momentum is for Democrats to raise the debt ceiling in a
standalone reconciliation bill, Punchbowl reports, with Republicans
agreeing to limit their delaying tactics and messaging votes. All
50 Republican senators would have to agree to that approach,
however, and it’s not clear that McConnell can produce that level
of cooperation.

One notable Republican is pushing hard against any cooperation
on the matter. Former President Donald Trump released a statement
Tuesday calling on Republican senators to use the debt ceiling to
wage war on the Democrats’ agenda.

“Old Crow Mitch McConnell, who is getting beaten on every front
by the Radical Left Democrats since giving them a two-month delay
which allowed them to 'get their act together,' must be fully
prepared to use the DEBT CEILING in order to totally kill the
Democrat’s new Social Spending (Wasting!) Bill, which will change
our Country forever,” Trump said.

“Use the Debt Ceiling, Mitch, show strength and courage,” Trump
added. “Our Country is being destroyed.”

Quote of the Day: Fed May Withdraw Pandemic Support ‘a Few
Months Sooner’

“At this point, the economy is very strong, and inflationary
pressures are high and it is therefore appropriate in my view to
consider wrapping up the taper of our asset purchases, which we
actually announced at the November meeting, perhaps a few months
sooner.”

– Federal Reserve Chairman Jerome Powell,
indicating in testimony before the Senate Banking Committee on
Tuesday that the central bank may speed up its plan to withdraw the
economic support it has been providing via $120 billion in monthly
purchases of Treasury bonds and mortgage-backed securities.

Powell said that the threat of persistently higher inflation has
grown and that the price gains seen recently are now likely to
linger at least into the middle of next year. He noted, though,
that Fed policymakers will be monitoring new labor market and
inflation data as well as updates about the omicron variant before
their next meeting, scheduled for December 14 and 15.

Earlier this month, Powell stressed that Fed tapering should not
be interpreted as a signal that interest rate hikes will quickly
follow, saying that the central bank still wanted to see the labor
market heal further. Still, the prospect that the Fed may act more
aggressively than previously indicated as it focuses more closely
on fighting inflation — combined with growing
concern about the omicron variant — was enough to
rattle markets again Tuesday. Major stock indexes fell close to 2%
on the day, and market expectations for an accelerated pace of Fed
rate hikes
jumped.

Biden Officials Studying Whether More Money Will Be Needed to
Fight Omicron Variant: Report

The White House Office of Management and Budget and other Biden
administration officials are looking into how much funding they
have available to redirect to respond to needs that may arise as a
result of the new omicron variant of the coronavirus, The
Washington Post
reports:

“Over at the White House, officials were working to understand
their options but so far do not believe there is a need for an
imminent request to Congress for more money. But that could change
in coming days, the officials said, as much of the funding already
approved for the White House to respond to the pandemic has been
earmarked for specific purposes, such as free testing for uninsured
Americans. White House officials are looking at how much money they
would need in a worst-case scenario, in case the administration
needs to immediately purchase mass quantities of vaccines designed
to immunize specifically against the new variant.
“The cost of updated vaccines for all Americans could run as
high as $7.5 billion, while buying 2 million additional monoclonal
antibody treatments could cost $4 billion, according to one senior
administration official, who provided rough estimates. Another $5
billion for 10 million antiviral pills could bring the total to $16
billion, the administration official said.”

The bottom line: Any White House push for a new round of
emergency funding could lead to some political sparring and debate
about what existing funding to shift toward omicron response, but
G. William Hoagland, a budget expert with the Bipartisan Policy
Center, told the Post that Congress would likely move quickly and
avoid messy fights if it becomes clear that more money is needed.
“I think it’s far too early to determine ‘what is needed for
omicron,’ but given our history if this becomes an issue I doubt
there’s any question that the resources will be there,” he said. “I
don’t see a domestic political fight happening over omicron.”

Chart of the Day: Surging Corporate Profits

Over the last two quarters, U.S. non-financial businesses have
posted the largest profit margins since 1950, according to
Bloomberg News. Those results indicate that the
economy is strong and that inflation isn’t yet a threat to the
recovery, Robert C. King, director of research at the Jerome Levy
Forecasting Center, told Bloomberg.

The record profits also suggest that complaints from business
owners and executives about the soaring cost of labor and materials
need to be taken with a grain of salt. While individual firms may
struggle to provide higher pay, “businesses in the aggregate can
safely say that when they spend more money on workers, that’s going
to be a situation where there is more revenue coming back to them”
as workers spend their paychecks, King said.

Still, the race between higher costs and higher profits isn’t
over. Over the past year and a half, worker incomes have been
boosted by fiscal policies that provided an increase in aggregate
income and a big jump in savings during the Covid-19 crisis, but
many of those policies have come to an end, which could cool
consumer spending. And if the Federal Reserve takes steps to reduce
inflation by raising interest rates, the surge in both incomes and
profits could come to a screeching halt while producing a new round
of conflict between worker demands for higher pay and business
efforts to maintain fat profit margins.

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