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.”
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.
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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