The debt ceiling – again

Just when it seemed like the economy was on an up swing and recovery underway, the debt ceiling is rearing its ugly head– again. Treasury Secretary Jacob Lew warned Congress on Monday that the borrowing limit needed to be increased so the government could continue to function.

Damien Paletta had this story in the Wall Street Journal:

A fresh battle over the debt ceiling is looming, and lawmakers will have less time and flexibility to negotiate than in earlier fights because of the annual rush of people seeking tax refunds this month.

Treasury Secretary Jacob Lew on Monday urged Congress to intervene quickly to raise the debt limit, the latest in a drumbeat of warnings from the Obama administration that dawdling could potentially lead to delays or cuts in Social Security benefits and military pay.

In October, as part of the deal that ended the government shutdown, Congress suspended the borrowing limit until Feb. 7. After that, the Treasury Department is expected to use emergency measures, such as halting certain pension payments, to allow it to continue borrowing money to pay the government’s bills. Those powers will run out by the end of the month, Mr. Lew said, a much shorter fuse than during previous fights.

“Without borrowing authority, at some point very soon, it would not be possible to meet all of the obligations of the federal government,” Mr. Lew said in a speech to the Bipartisan Policy Center.

The Washington Post story by Jia Lynn Yang pointed out that the nation would have some fairly hefty bills coming due because of tax season and Congress wasn’t doing much:

Enforcement of the debt limit is suspended, but it will come back into force Friday under the terms of a deal lawmakers struck in the fall. That leaves Lew bumping up against the limit in tax-filing season, he said Monday, when he will have far less flexibility to juggle the books and ward off disaster.

“Unlike other recent periods when we have had to use extraordinary measures to continue financing the government, this time these measures will give us only a brief span of time,” Lew said in a speech at the Bipartisan Policy Center. “Given these realities, it is imperative that Congress move right away to increase our borrowing authority.”

Congress, meanwhile, is moving at a relatively glacial pace. House Speaker John A. Boehner (R-Ohio) said last week that he will not permit the nation to default on its debt. But House Republicans emerged from their annual policy retreat without a plan for bartering with Democrats in exchange for raising the debt limit.

The most popular option under discussion by Republicans would combine a one-year extension of the debt limit with a ban on “bailouts” for health-insurance companies under the Affordable Care Act.

But Democrats say that the provisions dubbed “bailouts” by the GOP are necessary to ease the transition into the health-care law’s public marketplaces — and were employed when Republicans set up a similar system for the Medicare Part D prescription-drug program.

The Financial Times story by James Polti detailed the most recent history of the debt ceiling debate, which has many twists and turns recently:

The White House emerged triumphant from the last budgetary stand-off in October, when a 16-day government shutdown and brush with sovereign default was mostly blamed on Republican intransigence. Republicans recovered politically shortly afterwards as a result of the botched rollout of the 2010 health law. But they appeared to have learnt their lesson and are reluctant to force a new high-profile budget battle, even if it means triggering a backlash from conservative Tea Party members.

In December, Paul Ryan, the Republican chairman of the House budget committee, brokered a deal with Patty Murray, the Democratic chair of the Senate budget committee, to set spending levels for two years and avoid new federal shutdowns. But they avoided tackling the need to increase the debt ceiling, which is now looming.

In the recent past, Republicans have demanded huge concessions from the White House in exchange for debt ceiling increases, including deep spending cuts and a full repeal of the 2010 health law or a delay in its main provisions.

But this year, they are considering attaching much more modest policy changes as a condition of a debt ceiling increase, with the latest idea being to scrap some of the protections against big losses for insurers under “Obamacare” – the Affordable Care Act. But Mr Lew signalled the White House would continue to oppose negotiations over the debt ceiling, even in the face of sharply curtailed Republican ambitions.

The Reuters story did say the decrease in budget deficits had improved the nation’s finances:

U.S. politicians now partake in a regular dance around the country’s so-called debt limit. First, Congress authorizes spending that outstrips tax receipts. Then lawmakers balk over whether to OK enough borrowing to pay the bills. A rancorous debate ensues over putting public finances on a stable path.

Washington has danced perilously close to the edge of default several times since 2011, and this year some Republicans pledge to extract policy concessions from Democrats before they allow the debt limit to rise.

The administration has vowed not to negotiate on the matter, and Lew said public finances are in good enough shape that long-term fiscal problems don’t have to be solved this year anyway.

Federal debt ballooned during the 2007-09 recession and most analysts think Washington’s obligations to pay for health care for the elderly will stress the budget more as U.S. society ages.

But Lew said the sharp reduction in budget deficits over the last few years has bought America time to improve its fiscal outlook.

It’s impossible to say what would happen if Congress didn’t raise the debt limit. And while it’s unlikely to test it out, the fact that it’s even an issue is absurd. The economy shouldn’t be used in political brinkmanship.