The Republicans want to take away Treasury’s ‘extraordinary measures’. Wait, what?

No more cash management tricks for you! (Photo by Scott Applewhite/AP)
No more cash management tricks for you! (Scott Applewhite/AP)

The latest Republican plan for the debt negotiations is this: Buy time. House leadership wants to raise the federal debt ceiling enough to get the nation through Nov. 22, in exchange for broad negotiations over fiscal policy (and laying the groundwork for a pre-Thanksgiving showdown to replace the pre-Halloween showdown that has been lining up).

But one wrinkle in the Republicans' plan seems, at first glance anyway, a bit odd -- and possibly even a deal-killer from the view of the White House and Senate Democrats. According to reports, they have in mind a bill that would also permanently remove some of the extraordinary tools that the Treasury Department has that enables it to delay the day of reckoning when the United States comes up against the debt ceiling.

The Treasury has regularly used a variety of cash management tools to enable it to continue to carry out normal spending operations when the nation runs into the legal cap on debt issuance, including timing tricks around public employee pensions and use of the "exchange stabilization fund". You can read details of all six of the tools here; it's a little like a family juggling its bills by holding off making a contribution to their 401(k) for a while. So technically, we hit the legal debt ceiling of $16.699 trillion way back on May 19, even though Oct. 17 is the D-Day that the Treasury has identified as when the debt ceiling needs to be raised if the nation is to meet its financial obligations.

So would it matter if those tools were removed? Such a step would give this and future administrations less leeway to influence when the debt ceiling becomes a binding constraint, so it won't be shocking if the Obama administration opposes the idea.

At the same time, it shouldn't have too much practical impact on the immediate negotiations. The biggest impact will be to allow the Republicans to have greater control over when the debt ceiling next comes to a head. If they were to raise the ceiling, while also leaving those powers in the hands of the Treasury, there will be less visibility on when exactly the debt ceiling issue will come to a head.

One of the dirty secrets of the Treasury's cash management function is that very few people on earth understand how it really works, and almost all of those people work for the Treasury. So Republicans on Capitol Hill have felt that they don't have reliable information on when exactly they really, really need to raise the debt ceiling and when Jack Lew & Co. have more tools in their bag of cash management tricks.

So in that sense, this idea from the Republicans would add clarity to the situation, even if it leaves the treasury less room to manoeuvre.

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Ezra Klein · October 10, 2013

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