The Treasury Department will probably run out of money to pay the nation’s bills by the end of September unless Congress takes action, the Congressional Budget Office said Tuesday, raising a scenario that could cause financial havoc and shake the foundations of the global economy.
The U.S. government has been spending more money than it brings in for years, forcing the Treasury to borrow money by issuing bonds. But Treasury is allowed to issue only so much debt before it bumps up against the “debt ceiling,” a borrowing limit set by Congress.
Congress had previously agreed to suspend that limit until March 2. But when the limit comes back into effect, Treasury will not technically have the authority to borrow additional funds. This scenario has happened numerous times in recent years, and both Republican and Democratic administrations have resorted to what have been dubbed “extraordinary measures” to be able to keep paying the government’s bills — at times for several months after the debt ceiling is reached. But those efforts can keep the bills paid for only so long.
“The length of time that extraordinary measures can last is subject to considerable uncertainty,” Jonathan Blum, a deputy assistant treasury secretary, wrote in a recent letter to Rep. Richard E. Neal (D-Mass.). “Given this uncertainty, Treasury respectfully urges Congress to act as soon as possible to suspend or increase the statutory debt limit and protect the full faith and credit of the United States.”
The Trump administration has not given a specific date when it believes Treasury will run out of money, but the bipartisan CBO report is a widely respected estimate of when real trouble might occur.
“The Treasury will probably run out of cash near the end of this fiscal year or early in the next one,” CBO wrote. The federal government’s fiscal year ends Sept. 30. “If that occurred, the government would be unable to pay its obligations fully, and it would delay making payments for its activities, default on its debt obligations, or both.”
Congress has always voted to raise the debt ceiling in the past, but some Republicans threatened not to do so in 2011 in a standoff with former president Barack Obama over government spending. The mere threat not to raise the debt limit caused panic in financial markets and led Standard & Poor’s to downgrade the nation’s credit rating for the first time ever.
Federal Reserve Chairman Jerome H. Powell was asked Tuesday about what would happen to financial markets if Congress does not vote to raise the debt ceiling soon.
“It’s beyond even considering that the United States would not honor all of its obligations and pay them when due,” Powell said. “It is just something that can’t even be considered.”
Powell said merely bumping up against the debt limit creates “a lot of uncertainty” and serves as a “distraction from what is otherwise a pretty good economy.”
Congress voted in February 2018 to suspend the debt limit through March 1, 2019, as part of the bipartisan budget deal.
Prominent economists and policymakers on both sides of the aisle have called for the United States to get rid of the debt ceiling altogether. It was meant to be a curb on government spending, but in reality, Congress typically passes budgets that spend more money than the latest debt limit.
The money is already spent, but Congress votes to raise the debt ceiling later, causing potential political and economic crises that leaders of both parties dread. But others argue the limit still serves a purpose to remind Americans that the federal government is more than $22 trillion in debt, forcing periodic reckonings with the imbalance between what the government takes in and what is spends.