U.S. May Top Debt Limit Sooner Than Forecast, Forcing Congress’s Hand – By Erik Wasson (Bloomberg) / July 8 2019
Congress has been acting like it has months to raise the U.S. debt limit, but lower tax revenue projections mean lawmakers could face a tighter deadline, according to an independent policy group.
The Bipartisan Policy Center said Monday there is a “significant risk” that the U.S. will breach its debt limit in early September unless Congress acts. The group’s evaluation marked a revision from its previous forecast of an October to November date at which the U.S. will default on payment obligations.
The Treasury Department has been using so-called extraordinary measures to meet debt obligations since March 2, when the U.S. reached its $22 trillion limit on borrowing.
Lawmakers from both parties say there is no way the U.S. will default, but thus far there has been little urgency to act on a debt limit solution. Treasury Secretary Steven Mnuchin told Congress in May that the default deadline could come as soon as “late summer.”
Speaker Nancy Pelosi says the debt ceiling should be raised in conjunction with a two-year deal on government spending levels, but a broader deal will be harder to negotiate with GOP leaders.
Rejected Proposal
A meeting last month among Pelosi, Mnuchin and other congressional leaders ended in acrimony when Republicans said Democrats were asking for too much spending on domestic programs.
Mnuchin suggested a one-year debt ceiling increase be attached to a spending bill that would put the budget on autopilot for a year. Lawmakers rejected that proposal, and no follow-up meeting has been scheduled.
With the House slated to leave Washington for six weeks beginning July 26, Pelosi’s leverage to secure spending increases as part of a broader deal may be evaporating.
The Bipartisan Policy Center said it is still more likely that a default would occur in October, but there is now a heightened risk in the first weeks of September. Large payments due in early September increase the default risk ahead of a quarterly tax revenue infusion that would come in mid-September and provide some cash relief to the Treasury, the BPC said.
The Congressional Budget Office reported Monday that total revenue this year has grown by less than 3%, lower than BPC previously expected.
Prioritized Payments
The Treasury Department could decide to prioritize bond payments over government salary, benefit and vendor payments once the debt limit is reached. However, Mnuchin said in 2017 that he would not employ such a strategy. His comments were seen as part of an effort to pressure Congress to raise the debt ceiling at the time.
Dislocations in Treasury bill pricing suggest the market is struggling to pinpoint exactly when traders ought to be concerned about when the government runs out of borrowing capacity. While much focus had been on securities maturing in early October, current pricing indicates avoidance of various different bills across the September to October period.
Shai Akabas, BPC’s director of economic policy, told reporters that Congress should not leave Washington at the end of the month without raising the debt ceiling.
“That is placing a reckless risk on the U.S.’s full faith and credit,” he said.
© ASSOCIATED PRESS File-This Feb. 6, 2019, file photo shows Treasury Secretary Steve Mnuchin speaking with reporters outside the White House, in Washington. Mnuchin has informed Congress that he will stop making payments into two government retirement funds now that the debt limit has gone back into effect. In a letter Monday, March 4, 2019, to congressional leaders, Mnuchin said that he would stop making investments into a civil service retirement fund and a postal service retirement fund. (AP Photo/ Evan Vucci, File)
