The following information regarding the debt ceiling is factual analysis, not editorial comment. (I will save that for the end). It comes from the Bipartisan Policy Center, (BPC) a Washington think tank that is just as its name indicates — bipartisan.
The U.S. hit the legal debt limit on May 19. Since then, the secretary of the Treasury has used emergency borrowing authority, or "extraordinary measures," to keep the government operating. As soon as it can, Treasury must reimburse the various trust funds from which this money has come. As of Aug. 31, the amount of "extraordinary measure" money still available was roughly $108 billion — less than enough for a normal month.
We got through September because it is not a normal month. Quarterly tax payments are due on Sept. 16, raising the total coming in at a time when no large payments are scheduled to go out. However, on Oct. 1, roughly $75 billion was paid in military retirement benefits. "X Day" — the day all borrowing authority, including extraordinary measures, expires — is rapidly approaching. BPC estimates that it will hit sometime between Oct. 18 and Nov. 5.
After X Day, all government bills must be paid from actual revenue, which varies from day to day. (Which is why we cannot be sure exactly when X Day will occur.) There is no precedent regarding how this should be handled; from the moment Alexander Hamilton created our first national debt, America has never failed to meet a payment obligation. The Treasury secretary would be responsible for deciding who gets paid and who does not.
Here is a scenario of the kind of choices he would face. It is purely illustrative, an oversimplification, and may not be feasible:
In order to pay the following — interest on Treasury Securities; Medicare, Medicaid and Social Security; military pay and retirement; education programs; defense vendors; and benefits for the poor, such as food stamps, low income housing and unemployment — the secretary would have to forego paying IRS tax refunds; veteran's benefits; federal salaries and benefits; and Health and Human Service grants. There would have to be severe cutbacks at the Departments of Justice (FBI, federal courts), Energy (nuclear weapons stockpile), Transportation (road construction, air traffic control) EPA and FEMA (flood insurance). That's only a partial list of tradeoffs.
The pace of payments to the programs and agencies that would be funded would be chaotic because of the daily variability of federal receipts. Legal provisions in existing contracts could override priority decisions. (Assuming there were courts open that could hear the arguments.) Treasury's computerized payment system would have to be completely reprogrammed, requiring a massive overhaul.
All of this was carefully studied back in 2011, the last time there was a threat of a congressional failure to lift the debt limit. No one could devise a smooth way to handle any of the huge problems and complexities involved or calculate the exact amount of increased costs that would be incurred. It is certain that there would be higher interest rates on the national debt once the sale of U.S. securities resumed, because no one would take the risks connected with such purchases unless the rate of return was much higher than it is now.
Those are the facts; here is the editorial comment.
Failure to raise the debt limit would not get our financial house in order. Instead, it would massively damage vital governmental functions, crash the stock market and plunge us back into recession, stopping all economic growth and making paying off the debt much harder. Why is anyone even considering such a step?
Robert Bennett, former U.S. senator from Utah, is a part-time teacher, researcher and lecturer at the University of Utah's Hinckley Institute of Politics.
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