As the nation bobs its way in a barrel toward the “fiscal cliff,” Treasury Secretary Timothy Geithner sent a sobering letter to Congress yesterday. The United States will hit its $16.4 trillion legal borrowing limit on Dec. 31. There are “extraordinary measures” Geithner can take to give the nation $200 billion in headroom, which he said “would last approximately two months.”
But that’s of little comfort. “[G]iven the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013,” Geithner warned, “it is not possible to predict the effective duration of these measures.” That admonition backs up what the Bipartisan Policy Center (BPC) noted in a report last month. “[The extraordinary measures] won’t buy as much time as they did last summer,” the Washington-based think tank said.
So, as we hurtle toward another dance with the debt ceiling, it is imperative that we keep two things in mind. First, raising the legal borrowing limit is not new spending. It’s money already spent by Congress. Second, the federal government will not have enough revenue to cover its obligations without borrowing. To not meet those obligations would make the United States a deadbeat.
According to the BPC, February is a “bad” month because it “typically has very high federal expenditures.” In particular, “many tax refunds are paid in February,” and “taxpayers expecting large refunds are likely to file early.” By way of example, the BPC shows the expenditures from February 2012.
The government took in $202 billion that month. But it had $464 billion in bills, including those tax refunds, Social Security and other benefits. Actually, this brings up a third thing to keep in mind. The revenue received and the obligations that must be met are on different timetables. The money doesn’t come in a big chunk at the beginning or end of the month. Rather, it trickles in from day to day and in amounts that don’t cover any particular day’s bills due.
Take a look at this chart from the BPC during the debt-ceiling fight last year. It shows what would have happened on Aug. 3, 2011, had the borrowing limit not been raised on the default deadline of Aug. 2, 2011.
On Aug. 3, the Treasury was expected to take in $12 billion. But it was expected to have $32 billion in expenses. The Social Security checks alone amounted to $23 billion of that total. So, the federal government would have been $20 billion in the hole at the end of that day. The debt and the economic pain suffered by Americans would have compounded each day after the default deadline had a debt ceiling deal not been reached on Aug. 2.
Unless the current debt ceiling is raised before sometime in February, we will face the same ugly situation. Given the craziness over averting the fiscal cliff, my faith in Washington’s ability to avoid such an economic calamity diminishes by the day.
Follow Jonathan Capehart on Twitter.