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The poison pill in the latest House debt limit plan

October 15, 2013|By Michael Hiltzik
  • Treasury Secretary Jacob J. Lew at the recent G-20 summit. Nothing to smile about today.
Treasury Secretary Jacob J. Lew at the recent G-20 summit. Nothing to smile… (Mandel Ngan / AFP/Getty…)

As if extremists in the House Republican caucus don't already have too much influence over fiscal affairs, one of their latest proposals to resolve the shutdown/debt limit crisis would give them even more.

This is a provision to prevent the Treasury from employing "extraordinary measures" to avert a default in the case of a debt limit breach. These extraordinary measures boil down to moving money around in federal accounts.

They're effective in averting a fiscal meltdown, but only up to a point. For example, the government technically reached its existing debt ceiling of $16.7 trillion back in mid-May, but Treasury maneuvering has provided five more months of breathing room.

The current debt limit deadline of Oct. 17 (that is, Thursday) has been the Treasury's standing estimate of when these measures run out their string, though financial analysts generally agree that the true drop-dead point is sometime between early next week and Nov. 1.

During the last debt limit showdown, the Treasury suspended payments to various employee retirement and health benefit funds and called bonds held by some funds early.

None of these measures eliminated the cost of debt limit brinkmanship. The Government Accountability Office calculates that despite the last-minute debt limit agreement in 2011, the government's borrowing costs rose by about $1.3 billion in fiscal 2011 and more in subsequent years.

Moreover, the GAO said, the frenetic jiggering of government accounts cost "time and Treasury resources and diverted Treasury’s staff away from other important cash and debt management responsibilities."

Some economists seem to resent giving the Treasury this sort of wiggle room. "No one takes the debt limit seriously until the extraordinary measures are running on fumes, as they are today," Donald Marron of the Urban Institute wrote last week. 

Marron conceded, however, that Treaury's "dubious" maneuvers still "would be better than default." He observed that giving Congress a hard and fast debt limit date "could be a plus or a minus depending on your view of Congressional intentions."

Right. The view of congressional intentions fostered by recent history is that an outspoken group of Republican House members wants to crash the economy and default on federal obligations to make a point. What point? They can't even say. So it's probably safe to say that eliminating extraordinary measures is a minus.

We may see that in the next 48 hours, for even if the House and Senate reach an agreement to lift the debt limit, time may be excruciatingly tight to enact the necessary bills before Thursday's putative deadline. At that point, the remaining give in the system will be very important.

If you have a bloc of lawmakers intent on driving into a brick wall, it would be nice to have a few barrels filled with sand in the way. And if the ultimate resolution simply pushes off another debt limit to early next year, we may well need those extraordinary measures again. 

Reach me at @hiltzikm on Twitter, Facebook, Google+ or by email.


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