Happy Debt Limit Monday!
As of today, the United States is legally barred from borrowing money to finance its operations. Thanks for nothing, Congress.
This morning, the Treasury Department announced that the United States has officially reached the statutory debt limit:
Today, the United States has reached the statutory debt limit. Secretary Geithner sent the following letter [PDF] to Congress this morning alerting them to actions that have be taken to create additional headroom under the debt limit so that Treasury can continue funding obligations made by Congresses past and present. The Secretary declared a “debt issuance suspension period” for the Civil Service Retirement and Disability Fund, permitting Treasury to redeem a portion of existing Treasury securities held by that fund as investments and suspend issuance of new Treasury securities to that fund as investments. He also suspended the daily reinvestment of Treasury securities held as investments by the Government Securities Investment Fund of the Federal Employees’ Retirement System Thrift Savings Plan.
Yes, that’s right, the government is going to get around the debt limit by raiding Federal employee pension funds:
The Obama administration will begin to tap federal retiree programs to help fund operations after the government loses its ability Monday to borrow more money from the public, adding urgency to efforts in Washington to fashion a compromise over the debt.
Treasury Secretary Timothy F. Geithner has warned for months that the government would soon hit the $14.3 trillion debt ceiling — a legal limit on how much it can borrow. With the government poised to reach that limit Monday, Geithner is undertaking special measures in an effort to postpone the day when he will no longer have enough funds to pay all of the government’s bills.
Geithner, who has already suspended a program that helps state and local government manage their finances, will begin to borrow from retirement funds for federal workers. The measure won’t have an impact on retirees because the Treasury is legally required to reimburse the program.
The maneuver buys Geithner only a few months of time. If Congress does not vote by Aug. 2 to raise the debt limit, Geithner says the government is likely to default on some of its obligations, which he says would cause enormous economic harm and the suspension of government services, including the disbursal of Social Security funds.
So basically, in order to make up for the fact that we can’t legally incur new debt, we’re going to be incurring new debt, to the pension funds, that doesn’t count against the debt limit because we’re basically borrowing it from ourselves. It makes no sense at all, of course, but its the only option that Geithner has at the moment because negotiations on Capitol Hill don’t seem to be going anywhere:
The pathway to a deal remains unclear, even to those doing the negotiating. The White House and Republicans are giving conflicting signals about how close they are to a deal. Vice President Joe Biden said last week the contours of an agreement were taking shape. House Speaker John Boehner painted a different picture Sunday, saying on CBS’s Face the Nation “I’m not seeing any real action.”
Many Republicans and some Democrats have said they won’t vote to increase the debt ceiling without an accompanying deal to cut spending or tackle such longer-term fiscal problems as health-care costs. They argue the debt ceiling is a good venue to force changes needed to help secure the nation’s solvency.
People familiar with the negotiations led by Mr. Biden say they are looking at cuts to agriculture subsidies and federal retirement programs, stepped-up antifraud efforts, increased premiums for pension plans backed by the Pension Benefit Guaranty Corporation and the sale of wireless spectrum and government properties.
he talks are at an early stage and potential areas of agreement are preliminary, officials warn. But Democrats have not ruled out some thorny issues, according to people familiar with the negotiations, including reforms to the pension program for federal workers.
The areas being examined amount to a sliver of the $4 trillion goal officials have set for deficit reduction over the next 10 years.
And taxes remain a roadblock. Republican leaders say tax increases can’t be part of any deficit plan, but White House officials have said any plan must include revenue increases.
Mr. Sperling said the White House wants an agreement “weeks in advance as opposed to being in stalemate in late July where everything is coming down to the wire.” Mr. Boehner appeared to agree, saying Sunday a deal doesn’t “have to wait until the eleventh hour.”
If you’re looking for a reason why the public is frustrated with the political system, this would be it. We’ve known for months now that this day would come. Heck, John Boehner was talking about it only days after the 2010 election ended, and acknowledging that the debt limit would have to be raised. As I noted at the time, this is a vote that nobody wants to make but everybody knows is necessary:
Raising the debt ceiling is a crappy vote for any legislator to take. It demonstrates as plain as day the fiscal irresponsibility of the Federal Government, and the act of voting to push the debt limit even further into the fiscal stratosphere is one that looks bad on any representative’s resume. However, it’s also not a vote to be playing games with, as Boehner correctly points out. Unless Republicans intend to use the debt ceiling vote as a catalyst to force a national debate on making the kinds of spending cuts and tax changes that will be needed to seriously deal with the debt (and I would love it if they did), they need to just swallow their pride and cast the vote.
Instead of doing that, though, we’ve had four months of political posturing on both sides of the aisle. This is a deal that should have been done before today and instead we’re going to drag this out through the summer and, despite what Sperling says, I’m absolutely certain that this matter will not be resolved until the last possible minute. Because that’s how we do things in this country. This isn’t just a Republican problem, or just a Democratic problem, because both sides have been guilty of engaging in politically posturing, pandering, and generally using this issue to advance their agendas rather than actually solving the problem.
Is it any wonder that everyone hates Congress?
It is a ridiculous position to be in.
Further, it doesn’t help that most of the public (or, at least, the public that is even aware of this situation) seems not to understand the situation (including commenters here at OTB). They seem to think that not raising the debt ceiling somehow will cut debt.
I would expect a default. We need some added revenue and the GOP has pledged to not increase taxes.
Steve
Wow, four months of political posturing. Really?
More like forty years of political posturing while the debt continues to accumulate. I am in complete agreement with those members of Congress who feel that the debt limit should not be raised unless and until there is a serious effort to begin to reduce the annual deficits. We’ve been lied to before about raising the debt limit with promises of fiscal responsibility and cuts. Kind of like the one time only amnesty for illegal aliens, but I digress.
Time to break the codependency enablement of those who spend spend spend.
Dr. Taylor, not cut debt, but cut future indebtedness.
Yes, Charles, I do understand.
However, the vote on the debt ceiling itself will not accomplish that. Yes, a side deal might.
I have no problem with working out a deal to decrease future indebtedness in the abstract, but find the notion that we should hold the entire economy hostage at this moment in time to be highly irresponsible– as is allowing the situation to fester to the point that we have to resort to borrowing from ourselves to keep from defaulting for a few extra months to be ridiculous in the extreme.
But sure, why not: it sounds good not to raise the debt ceiling, so let’s play chicken.
I’m curious why the Democrats didn’t bother to do this when they controlled Congress and the White House and decided to have $1.5T a year deficits while Obama is president? They didn’t have to wait until the budget ceiling was reached, and to now lay all this at the feet of Boehner is remarkably disingenious. We’re the Democrats incompetent or just looking for another demogogic cudgel to beat Republicans with?
Dr. Taylor, as for playing chicken, I’ll note that it wasn’t me who led us into the fiscal abattoir. Yes, I’d rather have a showdown now that results in true fiscal reform, than another blank book of checks to continue $1T annual deficits as far as they eye can see with an eventual collapse we cannot control or even influence. Let’s not forget just how much debt has been accumulated over just the last three years.
The whole notion of a debt ceiling is absurd. If Congress doesn’t want to borrow more money, all they have to do is either raise taxes or cut spending.
@James,
George Will noted a few months ago that the U.S. is the only nation in the world that has such a thing.
Oh, and holding the econom,y hostage? Does that mean that the government is now the economy?
Happy National Small Business Week!
I am with James. And really, it is what drives my position: this is an utterly arbitrary and absurd concept.
@Charles,
You’re forgetting the fact that the Senate’s 60 vote rule means that the Democratic majority was not as powerful as you think after Scott Brown was elected.
Mr. Mataconis, yeah, one nation that feigned fiscal responsibility, until it became inconvenient. Perhaps it was one of those things that helped make America the ultimate safe harbor, but who needs that?
@Charles:
If the US defaults, it will have serious ramifications for the economy. This is clear and not an ideological or partisan position. If you choose to ignore this fact, this is your prerogative.
Yes, it was the debt ceiling that made America great. Who knew?
You make the point that I made above: you are making the entire process out to be something that it isn’t.
“… decided to have $1.5T a year deficits while Obama is president…”. I wish people making these ridiculous claims would stop and find out what that $1.5T deficit consists of and find out for themselves that the same people now screaming about the deficit are the ones who ran up said deficit. The Bush tax cuts and two unpaid for wars, along with the economic downturn, account for virtually all of the deficit over the next ten years. To portray this as Obama deciding to run huge deficits is just flat out wrong. And if your opinions are based on incorrect facts then your opinion is just bunk.
Re “all they have to do is either raise taxes or cut spending”
Democrats will not cut spending until they are force to. The debt ceiling is the best way to force them. If it was all that simple to cut spending it would have been cut a long time ago.
Wayne…
The facts don’t seem to jive with your ideology.
In ’90 G.H.W. Bush went along with Democrats on a program of spending cuts and small tax hikes. The result was reduced spending. This was followed up in ’93 by Clinton and a Democratic Congress (before Newt’s Contract on America) who enacted a very similar debt reduction program. A decade of reduced deficits and reduced spending followed. As thanks for his fiscal responsibility Bush ’41 was thrown out of office after one term by the so-called Republicans. Bush ’43 and a Republican Congress completely reversed the trend in 2001 and today we run $1.5T deficits thanks mostly to their programs.
Hey Norm, BS. Bush’s deficits were going way down until his final year in office, even though the “Bush” tax cuts and both wars had been going on for some time. It was TARP and then the Stimulus Package that blew the doors off. Go ahead look it up, or just make up some more BS.
Dr. Taylor, you have to make a rather snarky leap to get from where I am to the debt ceiling made America great. Whatever. I guess I can blame the whole problem on Scott Brown’s election if that methodology holds.
As to defaulting on debt, I’m certainly not for it, but how can you pretend that just kicking the can down the road and continuing to incur ever more debt we cannot possibly pay off isn’t going to yield the same result? I find it somewhat depressing that you claim that an attempt to inspire and yield some measure of fiscal responsibility is an utterly absurd and arbitrary concept.
Somebody wake me up as soon as the sky starts falling.
Let’s remember, that the Democrats, who were in the majority in the House and Senate, failed to pass a budget at the end of September of last year. October is when the current fiscal year started. They didn’t have the courage to tackle the problem back then, but chose to kick the can down the road. Where was the leadership back then from the POTUS. AWOL, that’s where.
Charles…I have looked it up. I suggest you do the same before you make such ridiculous claims. While the financial rescues and stimulus packages did raise the deficit in the short term, in the long run the Bush Tax Cuts are by far the biggest drivers of the deficits. I would also remind you that TARP was a Bush initiative, which was modified under Obama, and has actually made a profit. I would also remind you that the Stimulus Package, which saved or created well over a million jobs, was made necessary by one of the worst economic crashes in history which began under Bush – well before Obama took office. Like Wayne – the facts don’t fit your ideology. Maybe you need a new one?
Hey Norm, BS squared, or maybe cubed. Here are the facts on the deficit,. Here’s a paper on ARRA that calls BS on your jobs beliefs about the Stimulus package. Treasury claims to have made a profit on TARP, more accurately the $245B TARP funds issued to banks. Considering that TARP includes the GM and Chrysler fiascos, not to mention the ongoing mortgage diaster with Fannie Mae and Freddie Mac, I’d happily bet that any true acounting is not going to make a profit, but then that would require a level of transparency and perhaps the application of GAAP that the Treasury just won’t do. And then there’s the moral hazard argument, yada, yada, yada.
By the way, I’m impressed by your willingness to use the “jobs created or saved” meme. Not.
@Charles:
1) You are going to have to explain to me how the current debt ceiling number can be described as anything other arbitrary in nature.
2) How is defaulting in any way, shape or fashion an example of responsibility?
Mr. Taylor, the current debt ceiling numbers may be adbitrary in nature, but we are spending money that we don’t have. Do you think that transfering this debt to future generations is an example of responsibility?
In regards to the debt limit we have two choices:
1) Raise it.
or
2) Default.
Which route strikes you as the responsible one?
Charles…
I’m sorry…a conservative website that quotes the hyper-partisan Heritage Foundation cannot be taken as a credible source. But it does explain your questionable views.
This issue should have been solved during the last fiscal year, but it wasn’t. If the politicians are that irresponsible, then the only option is to default.
Can’t look it up on my phone, but IIRC a fair share of Americans have borrowed against their IRAs etc. Those at least are “represented.”
Other than that, funny comments. Especially “why didn’t the Democrats stop us from spending?”
What is the purpose of having a debt limit if the politicians are able to raise it whenever it suits them? Isn’t the limit supposed to help Congress control spending?
Dr. Taylor, not raising the debt ceiling does not automatically mean default. But why let a manufactured crisis go to waste.
Hey Norm, have you ever considered attacking the argument instead of the messenger? Just asking.
Hey Norm
The facts don’t seem to jive with your ideology.
Total spending has been increasing even through Bush and Clinton years. The deal there is the increase in spending was controlled so it wouldn’t outpace the increase in revenue.
http://www.usgovernmentspending.com/downchart_gs.php?year=1988_2016&view=1&expand=&units=b&log=linear&fy=fy12&chart=F0-total&bar=1&stack=1&size=m&title=&state=US&color=c&local=s
Most of the time you had a Republican President or a Republican Congress that insisted in keeping the increase in spending down or decrease in taxes. Granted sometimes they would compromise on tax increases to get spending increases down. Compromises where the Democrats would usually later undue.
The one exception is when Clinton and Democratic controlled congress gutted Defense and intelligence budget his first two years as President. However they took those cuts and spent them on domestic programs.
The debt ceiling is misunderstood and misrepresented, mostly by republicans.
The Treasury collects taxes and borrows money when tax revenue is too low to meet the spending authorized by Congress and the President through legislation.
Congress authorizes the Treasury to borrow up to a certain amount, and no more, in order to put the stamp of approval and demonstrate that the ‘full faith and credit’ of the USA stands behind the Treasury borrowing.
Hmmm. Guess that explains how Bush turned a surplus into a record deficit.
You might want to take a look at what GWH did with defense spending in the early 90s. Clinton’s cuts were a continuation of Bush 41’s policy, and in the wake of the collapse of the Soviet Union, almost everybody agreed it was a good idea.