Mnuchin: U.S. has Plans if Congress Won’t Raise Debt Ceiling
But….he won’t elaborate on the plans….
In May, Treasury Secretary Steven Mnuchin asked Congress to raise the debt ceiling before members take their summer recess in order for America to pay its debts. The ability to borrow money expired on March 16.
Now Mnuchin has said that he and the department have started to formulate plans to fund the government until September if Congress does not raise the debt ceiling. From The Wall Street Journal:
“The sooner [Congress does] it, the less uncertainty there is in the market,” Mr. Mnuchin said at a joint news conference in the Canadian capital, with Canadian Finance Minsiter Bill Morneau. “This is not an issue, but I don’t want to leave any doubt we have plans, and backup plans, for funding the government.”
He declined to elaborate when pressed further on what those backup plans entailed. “They are Treasury Secretary superpowers, and I will leave it at that,” he said.
Congress determines the debt ceiling, which is a law that places “a limit on the amount of money the Treasury is allowed to borrow.” Congress also “sets taxes and requires the Treasury to spend money with one set of litigation, and then forbids borrowing to cover any difference.”
Mnuchin, who made this announcement while in Canada, told the press that citizens have been paying “between 2 and 3 percent less in tax revenue than forecast.” Experts have said Americans have done this as a way “to delay paying taxes, hopeful that future lower tax rates could reduce the amount they have to pay.”
But with less taxes means less cash for the Treasury, which could explain why Mnuchin wants Congress to raise the debt ceiling.
It would help, too, if the government slashed its budget because “it spends more money than it brings in through revenue.”
Panic?
As The Washington Post points out, this could cause a panic in the financial market like in 2011. A Wall Street Journal survey has shown that the “majority of economists in the survey are concerned the economy could do worse than forecast.” The WSJ reported:
The Journal’s survey is a panel of financial, business and academic economists who produce professional forecasts. The survey of 60 economists was conducted June 2-6.
Their estimates for growth, inflation and unemployment were little changed over the past month. Most expect the economy to grow slightly above 2% for the next couple of years, and for the unemployment rate to slowly decline a bit further, reaching 4.1% at the end of 2018 from the current 4.3%.
The panel places the risk of a recession in the next 12 months at about 16%, or 1 in 6. The chance of a recession had been fading from where it was last summer. It is far lower than in mid-2011 when the odds were placed at nearly 1 in 3, showing that a repeat of the 2011 crisis isn’t seen as likely.
Stay Calm
Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University, has stated that “the heated rhetoric can get away from the debt zealots, and that’s when accidents happen.”
In other words, CALM DOWN.
But that’s not how the dramatic world of politics operates, unfortunately:
Many in Congress have become accustomed to using the debt ceiling as leverage, withholding votes to win changes to other legislation. In 2011, however, the disagreements lasted until the U.S. was just two days away from running out of money, and possibly defaulting on its debt.
That episode led S&P, the bond-rating agency, to strip U.S. bonds of their AAA-rating and many forecasters worried the episode would be so damaging to confidence that the U.S. could tip into a recession. While the U.S. avoided recession, the stock market fell nearly 20% that summer.
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Comments
Here’s a thought for our legislators: Fund only necessary functions of the government and you’ll have plenty of money to do so, and may in fact be able to raise the budgets of these functions.
Of course then thinking minds would ask why we are currently funding all of these unnecessary functions….
No debt ceiling increase! Never again! Shut it all down and keep it shut down if that is what it takes to shrink our bloated government. If the corrupt GOPe Congress won’t take the credit, let them take the blame. It’s all the same to me. Many (or most) of them will probably be primaried out of office next year anyway.
“No debt ceiling increase! Never again! Shut it all down and keep it shut down”
Would that be the case but the Republican Party we have can’t even repeal Obamacare. I predict an increase.
“The sooner [Congress does] it, the less uncertainty there is in the market,” Mr. Mnuchin said…”
On the other hand, the sooner Congress returns to actually passing budgets instead of continuing resolutions, the less uncertainty there is in the market. The “uncertainty” isn’t about a need for borrowing more money. It’s about the fear of what an out-of-control Congress will do are not allowed to borrow even more money.
It MUST stop and yesterday was already too late. I know that the GOP motto is “It’s never EVER the right time to do the right thing!” but could we do the right thing? For once!
I came here to rant but Pasadena Phil stole all of my thunder.
“As The Washington Post points out, this could cause a panic in the financial market like in 2011.”
This is so entirely ass-backwards, I don’t know where to start. Whether or not our government is pioneering absurd heights in spending or not can only negatively affect our economy. Businesses negatively affected by cutting government spending only happens in the fevered dreams of the socialists at WaPo.
As those of more sound mind kept pointing out during that summer of 2011 that it isn’t the spending, or lack thereof that is hurting our economy. It’s the massive debt that’s doing so. Never before has a country been in as much debt as we’re in now, we’re in uncharted waters. The Keynesians can rot in hell and take their theories with them.
“That episode led S&P, the bond-rating agency, to strip U.S. bonds of their AAA-rating and many forecasters worried the episode would be so damaging to confidence that the U.S. could tip into a recession.”
It is our astonishing unprecedented $14 TRILLION in debt at the time that was led to the lowering of our rating. To cease borrowing would be the cure, not the poison, and no, Mr. Rajeev Dhawan, the ability for our government to borrow even more is a *bad* thing.
By the way, our national debt is about to hit $20 TRILLION dollars. This is ‘unsustainable’ as the millennials like to say.
rdmdawg: It is our astonishing unprecedented $14 TRILLION in debt at the time that was led to the lowering of our rating.
It wasn’t just debt, but political dysfunction that led S&P to downgrade the U.S. credit rating, pointing particularly to political brinkmanship over the debt ceiling.
Absolutely incorrect, you have no data or evidence to back up your assertion.
rdmdawg: Absolutely incorrect, you have no data or evidence to back up your assertion.
Um, we provided a link concerning why S&P downgraded U.S. credit.
S&P has to say what it has to say for various reasons. That isn’t evidence.
rdmdawg: S&P has to say what it has to say for various reasons. That isn’t evidence.
Of course what S&P says regarding their ratings of U.S. credit is evidence. It’s certainly more substantial evidence than saying “Is not!”
You must think that we’re all idiots (condescension alert). You expect us to believe that a bunch of infighting about controlling the deficit, which NEVER touched on servicing of the debt (nobody is against that), and NOT the $17 TRILLION in debt that led to the downgrading of our debt. My heart bleeds. Your narrative is absurd, but keep on massaging it, be my guest.
rdmdawg: You expect us to believe that a bunch of infighting about controlling the deficit, which NEVER touched on servicing of the debt (nobody is against that), and NOT the $17 TRILLION in debt that led to the downgrading of our debt.
As we noted above S&P cited debt *and* political dysfunction. Not raising the debt ceiling would lead to default and a global economic meltdown.
Pasadena Phil: No debt ceiling increase! Never again!
Not raising the debt ceiling would lead to default. If you promise to pay Peter, but then don’t, you are in default. The global reserve currency is the U.S. dollar. If the U.S. were to default, it would lead to a massive economic meltdown.
To avoid this, Congress can either cut spending, raise taxes, borrow the money, or some combination of the above. However, inaction would lead to default.
That’s my point. Congress has better options than raising the debt ceiling. The GOP is now the only team on the field. There is NOTHING stopping them from delivering on the 2016 elections other than their own corruption.
For one thing, they could cut out the massive off-budget defense spending. They could also eliminate all of the political slush funds (like the DOJ one Sessions just eliminated) throughout the bureaucracies. There are several bureaucracies that could be eliminated (or at least drastically slashed) which would boost the economy with minimal negative effects.
If we all agree that government is too big, CUT! NOW!
Pasadena Phil: Congress has better options than raising the debt ceiling.
Congress has many options for action, but no reasonable option for inaction. Furthermore, there is no reasonable path forward in the near term that would avoid having the raise the debt ceiling.
Dude, you use bureaucrat words and sound like a weasly politician.
rdmdawg: Dude, you use bureaucrat words and sound like a weasly politician.
Dude, you forgot to provide a substantive reply.
There is no reason why debt service can’t be made the first priority and all else secondary.
Thane_Eichenauer: There is no reason why debt service can’t be made the first priority and all else secondary.
Debt service already is the first priority, but not paying your grocer is still a credit default.
The US government doesn’t order items from anything you or I would recognize as a grocer. Should the US government stop borrowing that would mean it would stop ordering products and services.
Thane_Eichenauer: The US government doesn’t order items from anything you or I would recognize as a grocer.
Huh? Actually, the federal government does contract for groceries through major grocers. They also contract for drones, office space, and paperclips. These contracts are fully enforceable. Furthermore, the U.S. has obligated itself for Medicare, and other benefit programs. They could alleviate these obligations, but that would require legislative action.
Thane_Eichenauer: Should the US government stop borrowing that would mean it would stop ordering products and services.
Yes. It would also mean the U.S. would be in credit default.
Gonna start calling Zachriel ‘Mr. Strawman’. One more time, for those who are particularly dense: Nobody is arguing that we should abandon servicing our debt. Say it out loud once, just to make sure you’re understanding it.
We’re all arguing for more sanity in our spending. This is not a debt problem. It isn’t that we aren’t taxing people enough. It’s a spending problem, and it’s getting worse year after year after year.
rdmdawg: Nobody is arguing that we should abandon servicing our debt.
As long as you agree that servicing that debt will almost certainly require increasing the debt limit.
Obama took us to $20 trillion with no observable consequences.
I say we sustain his legacy. More elective wars. More immigration reform. More… progressive debt.
I wonder if this ball of yarns can be managed in perpetuity or will it explode with catastrophic effects as the recurring economic misalignments (e.g. bubbles).
I presume they, them, those folks are going to borrow regardless of the debt ceiling. Most people should be advised that Mnuchin’s superpowers transcend legal or constitutional limitions.
Mnuchin need only utter “Hocus pocus borrowundis!” and borrowing as usual will continue.
Thane_Eichenauer: Most people should be advised that Mnuchin’s superpowers transcend legal or constitutional limitions.
No, they don’t. However, there are various accounts that can be juggled for short-term cash flow.
I say it is time to have these alleged accounts listed and valued for amount of borrowing.
Up till now these accounts seemed at least 50% defined by “Hocus pocus borrowundis!” – I’d love to see an open analysis of the dollar value of borrowing to be allowed by such accounts.
Not so. Treasury Secretary is a cabinet position. ALL cabinet positions report to the POTUS. There are no independent agencies within the government. It is Congress that holds the purse strings, not the Executive Branch.
I should add that every time Congress treats raising the debt ceiling as a separate national emergency, they waste the massive leverage needed to bring fiscal policy under control. We NEED a government shutdown and this time, it is Trump (the Chief Executive) who has big say in what of the 15% or so of non-essential government bureaucracy shuts down. This is a major jaw-boning opportunity for Trump. Take it!
Pasadena Phil: We NEED a government shutdown
Just to be clear, a government shutdown and the debt limit are separate issues.
Pasadena Phil: We NEED a government shutdown and this time, it is Trump (the Chief Executive) who has big say in what of the 15% or so of non-essential government bureaucracy shuts down.
Sure, but keep in mind that most government spending is mandatory and not subject to being shutdown.
“most government spending is mandatory” How convenient (and flat out wrong).
“Just to be clear, a government shutdown and the debt limit are separate issues.”
You must be the last person to hold that position. The news and all the acceptable people seem to pair them as one follows the other.
rdmdawg: “most government spending is mandatory” How convenient (and flat out wrong).
http://www.thearc.org/view.image?Id=2550
Of course all commies are going to profess that perpetual growth of the government is ‘mandatory’. Why? Because they say it is!
Thane_Eichenauer: The news and all the acceptable people seem to pair them as one follows the other.
There can be a government shutdown, such as when Congress fails to pass a budget, without the threat of a credit default due to reaching the debt ceiling.
@Zachriel: “Just to be clear, a government shutdown and the debt limit are separate issues.”
No shit. “Just to be clear”, again, it’s Congress that keeps threatening the shutdown rather than passing a budget. Shutdown isn’t the only option. The have other alternatives. Is that confusing you?
Pasadena Phil: Shutdown isn’t the only option.
That’s right. Inaction on the budget can cause a government shutdown. However, inaction on the debt ceiling will result in a credit default, and severe damage to the U.S. and global economic systems.
Mnuchin shouldn’t be demanding that the debt ceiling be raised but that Congress take up the budget Trump submitted.
I didn’t realize until minutes ago that Congress hadn’t passed a budget since 1997. Twenty years! Since 2011, they’ve been passing continuing resolutions. From 1998 to 2010, they were passing onmibus bills. Congress has not been in regular order for 20 years now!
Congress is supposed to be the greatest deliberative body in the world. More like the biggest and most corrupt money grubbing body in the world. All they do is vote on a stack of paper and raise the debt ceiling to pay for whatever is in there. So long as their free cheese in there, they don’t care. That’s progress? Massive stealing is progressive?
So much for that stupid constitution thingy anyway, it’s the 21st Century! Anyway, you’re supposed to stand aside and just let them plunder our nation so they can amass power and personal wealth.
Politicians make me so angry.