The clock is now ticking on the Treasury Department’s efforts to avert a first ever default on the nearly $20 trillion national debt, and some experts say Congress and the Trump Administration have until late summer or early fall to act before the problem reaches crisis proportions.
On Thursday, Treasury Secretary Steven Mnuchin urged House Speaker Paul Ryan (R-WI) to persuade the House to raise the legal debt ceiling above $20 trillion “at its first opportunity.” At the same time, Mnuchin announced that the Treasury has begun taking “extraordinary measures” to buy the government additional time before the government exhausts its borrowing authority.
Raising the debt ceiling is one of the most politically onerous and thankless tasks that is necessary periodically to allow the Treasury to borrow more in order to repay China, Japan and other U.S. creditors. Because the government spends more money than it takes in, raising the debt ceiling is also essential to keep cash flowing to operate defense and domestic government programs and to make sure that millions of Americans continue to receive their Social Security checks on time.
The task almost invariably becomes enmeshed in larger partisan disputes over budget and tax policy and frequently raises the specter of a partial government shutdown if left unresolved.
In his letter, Mnuchin revealed that the Treasury Department was suspending the sale of certain state and local securitie, a task the Treasury routinely performs to assist state and localities in meeting their obligations. By doing so, the Treasury technically slows the rate of growth of government borrowing.
Other maneuvers the Treasury likely will take to forestall the threat of default include delaying the reinvestment of assets in the Federal Employees’ Retirement System G-Fund, the Exchange Stabilization Fund and the civil service and postal retirement fund.
Those and other steps would likely enable the Treasury to continue making all payments until at least mid-August or early September, but it's unclear what would happen beyond then, according to some budget analysts.
But not everyone is so sanguine. David Stockman, the storied White House budget director during the Reagan administration, insists that the Treasury’s financial picture is direr than Mnuchin is letting on and that “they are burning through cash at the Treasury like drunken sailors.”
“In the first 46 days of the Trump administration they burned through $294 billion of cash,” after starting with $382 billion, Stockman told Fox News this week. If they continue at last year’s rate, he said, “They will be out of cash by Memorial Day” at the end of May.
Trump and the Republicans will need some support from Democrats to raise the debt ceiling since many conservatives refuse to support a boost in borrowing authority. Stockman said there is currently “no pathway” to a majority of Congress agreeing to raise the debt ceiling given the poisonous divide between Republicans and Democrats over policies ranging from immigration to health care reform.
“By May, the Republican Party is going to be in tatters, and there will be no majority to raise the debt ceiling, and then the rubber will meet the road,” he said. “This debt ceiling crisis is going to take down the whole system.”
In 2015, Congress and the Obama administration declared a temporary truce on debt ceiling politics by agreeing to suspend the debt limit until March 15 of this year – just a few days from now. At that point, the Treasury technically will be unable to borrow additional funds without the consent of Congress and the White House.
President Trump created a stir in financial circles during the 2016 campaign by lightly dismissing the importance of the debt ceiling. He even suggested that if push came to shove, he would try to negotiate down the debt with the country’s biggest creditors. And White House budget director Mick Mulvaney, a former Tea Party conservative House member, has long voiced skepticism of the dangers of the Treasury defaulting on its debt, suggesting that Congress and the administration could “prioritize” repayments of loans and federal expenditures.
But Mnuchen, a wealthy former Wall Street banker and hedge fund manager, takes the debt ceiling deadly seriously. He made it clear in his letter to Ryan that the debt ceiling demands immediate attention, even while the GOP-controlled Congress and White House are struggling to pass legislation to repeal and replace the Affordable Care Act.
“As I said in my confirmation hearing, honoring the full faith and credit of our outstanding debt is a critical commitment,” Mnuchin told Ryan. “I encourage Congress to raise the debt limit at the first opportunity so we can proceed with our joint priorities.”
The Treasury has had close brushes with default over the decades. In August 2011, Standard & Poor’s downgraded the federal government’s Triple-A rating after Congress and President Barack Obama deadlocked for weeks over a budget deal, and the Treasury came within an eyelash of defaulting