On Monday, the Treasury Department announced that it will run out of the ability to move funds around to stave off the necessity of raising the debt ceiling in mid-October, the first firm indication of when Congress will need to raise it. Treasury calls these moves “extraordinary measures,” and the first victim of these accounting tricks were state and local governments when it temporarily stopped issuing them special securities.
Congress passed a measure to raise the debt ceiling by about $300 billion in January, and the ceiling currently stands at $16.7 trillion.
Congress routinely passed debt ceiling increases as necessary for 50 years, including seven times under President George W. Bush. But that came to a halt in the summer of 2011, when the Republican Party began issuing demands in return for a raise. That’s when Senate Minority Leader Mitch McConnell (R-KY) decided that the debt ceiling was a “hostage that’s worth ransoming” in order to force through a Balanced Budget Amendment and other severe spending reductions while refusing to consider tax increases as part of a deal.
That gamesmanship got the United States’s credit rating downgraded by Standard & Poor’s for the first time in history. But the United States government didn’t even technically default on its debt that time. An actual default could be catastrophic. Without an increase in the debt limit, Treasury would only be able to spend money as it came in, likely forcing it to make choices to pay some creditors over others, possibly paying bondholders before Social Security recipients. But even that prioritization may not be possible, and if those who lend to the government don’t get paid, investors could become unwilling to lend to the U.S., leaving it with an immediate cash shortfall. It could also have enormous ripple effects in the financial markets and the entire economy.
Yet Republicans are once again beginning to make demands in return for an increase. House Speaker John Boehner (R-OH) has already said, “We’re not going to raise the debt ceiling without real cuts in spending.” Others have toyed with the idea of trying to defund Obamacare through the debt ceiling fight. While the original plan for a group of 15 Republican lawmakers was to force a defunding measure before passing a Continuing Resolution to keep the government open and operational, some are now eyeing the debt limit instead. A aide to House Majority Leader Eric Cantor (R-VA) called the debt ceiling a “good leverage point” for getting its way on the Affordable Care Act (ACA). Sen. Tom Coburn (R-OK) has opposed defunding the ACA through the CR fight and instead endorsed doing it by “attach[ing] it to the debt limit” and has also called a refusal to raise the debt limit a “wonderful experiment” that would stop the government from spending money on “stupid things.”