The Treasury Department said it would hit its borrowing limit in mid-October and be unable to pay all of its bills soon after that time, narrowing the window the White House and Congress have to maneuver on budget talks.
The deadline, which is sooner than many on Capitol Hill had expected, gives a sobering jolt to a number of fiscal discussions that have faltered for months.
The White House and many lawmakers, as well as economists and business leaders, have warned of a possible financial crisis if the $16.7 trillion borrowing limit isn’t raised and the government can’t pay all of its bills. Interest rates likely would spike and the bond and stock markets would become extremely volatile if the value of Treasury securities came into question.
Before Monday, the Treasury had said the debt-ceiling deadline would occur sometime after Labor Day, and some outside analysts had forecast it might not come until November. The new mid-October deadline falls just two weeks after Congress and the White House must reach a separate agreement over how to fund government operations beyond Sept. 30, the end of the federal fiscal year. Failure to do so would trigger a partial government shutdown.
Washington remains deeply polarized over the tax and spending issues that are central to the discussions that will soon take place.
The White House and Republican leaders on Monday used the new timetable to reiterate already-hardened positions, suggesting that the two sides are far apart and that any agreement, if reached, could be far away.
“The debt limit remains a reminder that, under President Obama, Washington has failed to deal seriously with America’s debt and deficit,” said Michael Steel, a spokesman for House Speaker John Boehner (R., Ohio).
Mr. Boehner has said he would support an increase in the debt ceiling only if it is accompanied by a larger level of spending cuts or budget changes.
The White House said it wouldn’t negotiate over raising the debt ceiling, reiterating its view that Congress cannot send signals to financial markets that the government won’t make payments it has agreed to fund.
“Protecting the full faith and credit of the United States is the responsibility of Congress, because only Congress can extend the nation’s borrowing authority,” Treasury Secretary Jacob Lew wrote in a letter to Mr. Boehner on Monday. “Failure to meet that responsibility would cause irreparable harm to the American economy.”
Mr. Lew told Congress that after mid-October, the government would only have $50 billion in cash, a sum that could be depleted quickly. That money probably wouldn’t last long, said Steve Bell, senior director of economic policy at the Bipartisan Policy Center, a think tank founded by Democratic and Republican lawmakers calling for bipartisan solutions.
“The first of November is a nasty day,” he said. “You have a lot of money going out the first of November.”
The Treasury has used emergency measures, such as suspending certain pension contributions, for months to buy more time for Congress to act. Some lawmakers had believed that the government’s improving fiscal condition, bolstered by rising tax revenue and money coming in from mortgage-finance firms Fannie Mae and Freddie Mac, could give the Treasury even more time, potentially until sometime in December.
The White House has spent several months working with a small group of Republican senators to discuss a budget agreement that some Democrats had hoped would clear the way for an increase in the debt ceiling. Those talks have not progressed beyond an early stage, people familiar with the process have said.
House GOP leaders haven’t disclosed their strategy for dealing with the debt-ceiling deadline, focusing instead on what to do to avoid a partial government shutdown at the end of next month. They have held talks with rank-and-file members over a proposal to fund the government at existing levels for the next two or three months, a proposal that many Democrats have indicated they could reluctantly accept.
A vocal minority of Republicans, however, have said they would vote for a budget bill only if the White House’s health-care law is defunded, a demand Democrats wouldn’t accept—setting up a clash that could make it more difficult to reach a bipartisan agreement.
It is unclear if the tightened debt-ceiling window could alter their planning.
The U.S. government has roughly $16.7 trillion in debt, a level that continues to rise because the Treasury spends more money than it brings in through taxes, fees and other revenue. The deficit—the annual gap between spending and revenue—has fallen sharply this year, but it is still expected to be around $600 billion for the year that ends Sept. 30.
In 2011, the White House and congressional Republicans locked horns in a bitter feud over the debt ceiling. They spent weeks working to craft a deficit-reduction agreement to combine with an increase in the debt ceiling, but those talks collapsed in late July and financial markets swung wildly.
The debt ceiling was increased in early August as part of the Budget Control Act, which set caps on certain spending levels and led to the across-the-board “sequester” cuts that began in March and are scheduled to continue through 2021.
Source: The Wall Street Journal
