The White House tacitly endorsed the proposal Tuesday, issuing a statement that said Obama “would not oppose” the temporary respite. The president has called for a long-term extension of the Treasury Department’s borrowing authority, which he argues would “increase certainty and economic stability.”
But, White House press secretary Jay Carney said, “clearly, we support extension of the debt ceiling without drama or delay.”
Senate Majority Leader Harry M. Reid (D-Nev.) also welcomed the proposal. “I’m glad,” he told reporters, “we’re not facing crisis here in the matter of a few days.”
Under the proposal, the legal limit on government borrowing — now set at $16.4 trillion — would remain intact, but its enforcement would be suspended until May 18. In the meantime, the Treasury could continue borrowing to cover the cost of Social Security checks, the military payroll, interest payments to the nation’s creditors, and other obligations.
The approach — unprecedented since World War II — would let Republicans avoid a debt-ceiling fight, which could be politically and economically damaging, without endorsing a higher limit.
On May 19, the debt limit would automatically be reset at a higher level that reflected the additional borrowing. Treasury officials could then begin taking what they call “extraordinary measures” to continue paying the nation’s bills, probably pushing the new default deadline into late July or early August, independent analysts said.
Without congressional action, the Treasury predicts that it would run out of money to pay the nation’s bills by early March. That would lead to the U.S. government’s first default, which, economists say, would invite a new recession, damage American credibility abroad and potentially destabilize world financial markets.
If Congress approves the GOP measure, lawmakers would still face other painful deadlines, including the imposition of sharp automatic cuts in government spending on March 1 and a potential government shutdown on March 27.
Missing either of those deadlines would hurt U.S. economic growth, but neither would have the calamitous effects of a government default, said Joel Prakken, chairman of the independent forecasting firm Macroeconomic Advisers.
“The world’s a little safer with that debt ceiling pushed off for six months or so,” he said.
The government came perilously close to default in the summer of 2011, when Republicans gained control of the House and used the debt limit to force Obama to approve more than $2 trillion in spending cuts over the next decade. Burned by the president’s successful campaign to raise taxes on the wealthy during the recent fiscal-cliff negotiations, some Republicans were threatening to once again use the debt limit to extract new concessions on spending.