Pressure is building on Republicans to find a way to tackle the debt limit.
With the House still clueless about who its next Speaker will be, Congress has just 10 legislative days to tackle a topic at the center of some of the most pitched fiscal battles of the last several years.
The deadline was moved up Thursday by Treasury Secretary Jack LewJack LewOne year later, the Iran nuclear deal is a success by any measure Chinese President Xi says a trade war hurts the US and China Overnight Finance: Price puts stock trading law in spotlight | Lingering questions on Trump biz plan | Sanders, Education pick tangle over college costs MORE, who told Congress it has only until Nov. 3 to raise the government’s $18.1 trillion borrowing cap.
Without a hike, the specter of a default on U.S. obligations looms large — potentially setting the stage for significant market turmoil and dire consequences for America’s financial reputation across the globe.
“The first thing you’ll see is a market reaction,” said Doug Holtz-Eakin, head of the right-leaning American Action Forum and a former director of the Congressional Budget Office. “Then you’ve got dramatic impacts on consumer confidence, the world’s melting down again and they go into an economic fetal position … there’s just no good news there.”
Senate Majority Leader Mitch McConnellMitch McConnellThough flawed, complex Medicaid block grants have fighting chance Sanders: 'If you don't have the guts to face your constituents,' you shouldn't be in Congress McConnell: Trump's speech should be 'tweet free' MORE (R-Ky.) is engaged in budget talks with the White House, but there is little optimism a deal could be struck in time to act on the debt limit.
In the House, Speaker John BoehnerJohn BoehnerHouse markup of ObamaCare repeal bill up in the air Conservatives to Congress: Get moving Boehner: ObamaCare repeal and replace 'not going to happen' MORE (R-Ohio) is wondering whether he’s going to get to leave Congress at the end of the month.
When he announced his resignation, BoehnerJohn BoehnerHouse markup of ObamaCare repeal bill up in the air Conservatives to Congress: Get moving Boehner: ObamaCare repeal and replace 'not going to happen' MORE said he was ready to clean up some outstanding issues for his successor — which Washington took as a signal on the debt limit.
But Boehner could face a move from conservatives to remove him as Speaker immediately if he brings a clean bill to raise the debt ceiling to the floor.
Another problem for Boehner is the Republican presidential race. The debt limit hasn’t been a major issue for the field so far, but that is likely to change if it dominates headlines ahead of Nov. 3.
The next Republican presidential debate is scheduled for Oct. 28, just five days before the deadline.
Some conservatives say a new Speaker should make the call on the debt limit.
“At this point, John Boehner is essentially a rogue agent beholden to no one — especially the conservatives that delivered him the gavel in 2011,” said Dan Holler, spokesman for Heritage Action. “Any debt-limit negotiations should include a new speaker, and given the latest CBO estimate, there is no urgency to act before October 29.”
The Congressional Budget Office (CBO) determined Wednesday that the government would not have enough cash to pay all its bills in less than 30 days. In a letter to Congress on Thursday, Lew said the government would have just $30 billion in cash to work with on Nov. 3. Federal bills for a single day sometimes eclipse $60 billion.
Democrats are seizing on the shortened time frame to ramp up pressure on Republicans.
House Minority Leader Nancy Pelosi (D-Calif.) called on Republicans to bring up a clean debt-limit bill as soon as possible and warned that the leadership turmoil gripping the party was no excuse.
“Our credit rating must not be threatened by the fever that has gripped the Republican Congress,” she said in a statement. “Republicans should bring forward a clean bill to honor the full faith and credit of the United States immediately.”
Exactly what would happen if Congress were to let Lew’s deadline pass without action is a murky question. Congress has never failed to raise the debt limit in time, and the government brings in and sends out thousands of payments a day, making it incredibly difficult to predict exactly when the government would run out of money.
The Bipartisan Policy Center (BPC), which tracks the debt limit and government expenditures closely, believes the government would miss a payment sometime between Nov. 10 and 19. But Steve Bell, the BPC’s senior director of economic policy, warns that Congress should act well before that window, given the uncertainties in nailing down a date.
Once the Treasury begins to run out of cash, there are a number of steps it could take to try to minimize the damage. For example, the government could try to prioritize some important payments over others. Or it could hoard incoming cash and then make a day’s worth of payments when it has enough.
But even those maneuvers come with a cost. If the Treasury begins prioritizing certain payments, it would end up shirking some that most would view as essential.
According to the BPC, if the government faces insufficient cash on Nov. 10, roughly one-third of payments owed for the rest of the month could not be made, assuming Treasury pays in full the remaining obligations.
That would mean things such as interest on Treasury debt, Social Security benefits and military salaries could be paid. But those outlays might come at the expense of items such as tax refunds, salaries for other federal workers and funds that keep federal courts, road construction and air traffic control in operation.
“You open a hornet’s nest of nightmares and difficulties for the Treasury, literally — which legal promises on either debt or programs are you going to break?” said Holtz-Eakin.
And in the latter scenario, the Treasury would be deliberately making late payments on a host of federal obligations, which carry its own significant consequences.
The U.S. suffered its first-ever credit rating downgrade after a fierce 2011 fight over the debt limit, and credit raters have warned in the past that even a temporary default on obligations could put the U.S. at risk for another.