Less than six months after taking office, U.S. Treasury Secretary Steven Mnuchin finds himself boxed into a corner, and only Congress can get him out. Mnuchin follows a long line of Treasury secretaries who have duly asked Congress for quick passage of a “clean” debt limit extension. Few have succeeded.
Since the Treasury bumped up against its debt limit on March 16, when the most recent congressional suspension of the debt limit expired, Mnuchin has been doing all that is in his control. He has deployed so-called “extraordinary measures” that he is legally authorized to use as a means to buy more time for Congress to act.
When the extraordinary measures run their course, leaving the Treasury only with cash on hand (similar to your credit cards being stopped, leaving you just with the money in your wallet), the United States will shortly thereafter be unable to pay all of its bills on time and in full — a situation that the Bipartisan Policy Center calls the “x date.”
This means that everyone from Social Security beneficiaries to providers of Medicare and Medicaid services to defense contractors could have their payments delayed.
Mnuchin is currently in a difficult position. But if Congress fails to act on the debt limit before the “x date,” he will be in an impossible position. The Treasury secretary has no legal authority upon which to pay some of the government’s bills and not others.
It is Congress that determines spending priorities, which the Treasury secretary as part of the executive branch is then required to carry out. Picking and choosing is not part of his job description.
Extending the debt limit is widely misunderstood. It doesn’t increase spending. It doesn’t commit the nation to more indebtedness. It simply affirms that Congress and the president will continue to make good on all of the federal government’s bills.
So why has the act of merely admitting how much the United States owes to its creditors been a thorn in the side of so many administrations?
Today, the debt limit stands at a hefty $19.8 trillion. Many members of Congress want to take aggressive action to stem future debt accumulation, and they frequently choose the Treasury secretary’s request for an extension of the debt limit as their moment to take a stand. While such fiscal responsibility is admirable in other contexts, it can turn this simple request into a protracted headache for the Treasury secretary and a giant financial risk for the country.
The BPC projects that the “x date,” when Treasury will be unable to fully pay all the government’s bills, is most likely to occur sometime in early to mid-October. If that point is reached, the United States would default on its obligations. Such a failure would be unprecedented in the modern era, and even if temporary, would risk catastrophic consequences for the global economy and financial markets.
Congress may decide once again to play a game of “chicken” on the debt limit bill. Expect amendments of every kind when it comes up for debate. Whether a grand scheme to try to address the drivers of America’s debt, or attempts to enact pet projects, or merely an expedient way to get the fiscal year 2018 spending bills done, some members of Congress would like to see the debt limit bill become the granddaddy of all legislative “Christmas trees.”
Every time Congress delays debt limit action to the last minute, however, it flirts with disaster. It risks an inadvertent mistake that might result in default on our debt, which would have a long-term impact on the creditworthiness of the United States and on interest rates paid by consumers across the country.
Furthermore, as the “x date” nears, it puts the economy and international financial markets on edge, resulting in real costs to American taxpayers through elevated borrowing rates on U.S. securities. Evidence of this concern among investors can already be seen in Treasury auctions from the past week.
Some have argued that in the interconnected financial world we now have, Congress should get out of the business of dealing with the debt limit. But that’s a debate for another time. The clock is ticking toward the “x date,” and averting serious damage must be the focus for now.
Mnuchin must get a debt limit extension. But he does not have the authority to make that happen, only the legislative branch does. If Congress fails to act before the “x date,” the country will find itself headed into unfamiliar, dangerous financial territory. And whether he likes it or not, Mnuchin will be shoved into the driver’s seat of that runaway train.
Shai Akabas is director of fiscal policy at the Bipartisan Policy Center.
Steve Bell is a senior advisor at the Bipartisan Policy Center.
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