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Congress Will Face Debt Ceiling Decision Immediately After Recess

Congress Will Face Debt Ceiling Decision Immediately After Recess

Address the debt ceiling or damage America’s credit rating.

https://www.youtube.com/watch?v=TTlkX41zuhQ

After failing to do anything with Obamacare, Congress has gone on recess without addressing the debt ceiling.

Treasury Secretary Steven Mnuchin has warned Congress to address the debt ceiling for the past seven months and do something before recess. Mnuchin said the government needs to raise the debt ceiling before September 29 or it will run out of money to pay the bills.

Congress will only have 12 days to address the issue after the lawmakers return from recess.

The Wall Street Journal reported:

The Treasury Department has been employing cash-conservation measures since March, when borrowing hit the formal ceiling of nearly $20 trillion. Those measures are expected to run out in early to mid-October. When they do, the government won’t have money to pay interest on debt, write Social Security checks or make millions of other routine payments, unless it can tap credit markets for borrowing to raise additional cash. Missing payments could send financial markets in a tailspin.

The path to raising the debt limit will be the first major political test for Mr. Mnuchin, a Washington novice who has been intensely focused on the Trump administration’s forthcoming tax overhaul proposal.

“Based upon our available information, I believe that it is critical that Congress act to increase the nation’s borrowing authority by September 29,” Mr. Mnuchin said in last week’s letter.

It is going to be a tight squeeze. Treasury’s cash balance is expected to drop to near $25 billion in September—a precariously low level, especially in the event of some unforeseen shock, such as a severe natural disaster, global crisis or unexpected drop in revenue.

However, September 29 is not set in stone. It’s the day Mnuchin believes the government will run out of money. It could occur before or even after.

Either way, Congress delaying the debt ceiling issue can cause problems in the market. From CNN Money:

Waiting until the last minute to raise or suspend the debt ceiling is a bad idea. It causes a lot of uncertainty in the markets, which causes U.S. borrowing rates to rise. It diverts a lot of human capital at the Treasury that could be better spent on other matters of national importance. And it tempts fate.

“Every time Congress delays debt limit action to the last minute … [i]t risks an inadvertent mistake that might result in default on our debt, which would have a long-term impact on the creditworthiness of the United States and on interest rates paid by consumers across the country,” fiscal experts Shai Akabas and Steve Bell of the Bipartisan Policy Center noted in a recent opinion piece.

The debt ceiling issue in 2011 and 2013 caused the markets to spiral out of control, which led “S&P to downgrade the U.S. credit rating.”

During former President Barack Obama’s administration, “some Republicans in Congress challenged the White House to allow cash to run down and prioritize some payments, such as interest on debt, over others, such as discretionary spending.”

Lawmakers may attempt that approach, but it may not work:

Transcripts from a 2011 meeting of the Federal Reserve showed the central bank, as the Treasury’s financial agent, was prepared to continue making payments to bondholders, while potentially delaying other payments, if Congress failed to raise the borrowing limit back then.

Mr. Mnuchin told lawmakers on Capitol Hill last week he had “no intent” to prioritize payments, which would put him in the uncomfortable position of choosing whether to pay foreign bondholders ahead of retirees or government workers. “I think that doesn’t make sense,” he said. “The government should honor all of its obligations and the debt limit should be raised.”

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Comments

UnCivilServant | July 31, 2017 at 10:28 am

Though I know the depressing answer, I always ask “why is the debate always on raising the borrowing limit and not on cutting spending to avoid hitting the borrowing limit?”

They’re juggling apples and oranges.

“some Republicans in Congress challenged the White House to allow cash to run down and prioritize some payments, such as interest on debt, over others, such as discretionary spending.”

Very sensible. That’s how individuals and corporations pay their bills, and it can work for governments too.

“The government should honor all of its obligations and the debt limit should be raised.”

This is only true if no distinction is made between obligations and discretionary spending.

    Close The Fed in reply to tom swift. | July 31, 2017 at 12:03 pm

    Tom Swift’s comment is accurate. Business and families prioritize all the time, including when cash flow doesn’t support expenses.

    I wonder if he’s discussed it with Trump. After all, he operates under the executive. If we take Mnuchin as a stand-alone actor, then it appears his goal is to pressure Congress to pass a debt limit increase regardless of its use as a pressure to make difficult choices. He does this by telling the gullible section of American people that we can’t prioritize, which is a damn lie.

    He knows congressmen can’t explain finances to their financially uneducated voters. Makes Mnuchin appear to be unsavory.

    tom swift: That’s how individuals and corporations pay their bills, and it can work for governments too.

    Paying the mortgage before the grocer may make sense, but it still represents a failure to pay as agreed.

    tom swift: This is only true if no distinction is made between obligations and discretionary spending.

    Once Congress passes a spending bill, people are hired, and requisitions issued, there is a financial obligation to pay. The worker and the paperclip vendor have a legal right to on-time payment.

Shut it down. There is just no “finessing” a corrupt process. We just had a very important election that delivered a very big message. If Congress is going to continue to kick voters in the teeth, we have nothing to lose in shutting it down. Trump can then either follow through on cancelling the insurance company and Congress ObamaCare subsidies or exempt everyone from ObamaCare. Shut it down NOW!!!!

I suspect the raising of the debt ceiling will happen without fanfare, and all of the hype and panic being spread is just that.

1) Increased economic activity = increased Federal revenue (for a change after eight years of stagnation)
2) Serious focus on reduced government interference and regulatory cutting make this a long-term instead of a short-term growth.
3) Nobody wants to be the tall dandelion when the lawn mower is headed their way.

Now, there is some long-term concern here. Most of the borrowing over the last eight years (and around eight trillion dollars) was in short term bonds, which have to be renewed repeatedly. When interest rates go up, the cost of this borrowing will skyrocket, so even if Trump and the Rhino caucus can work together to balance the budget and cut spending, the government debt will continue to grow regardless. And that’s a big *if* in the equation, because the Medicare expansion opened Fed pockets bigtime, and nobody wants to fight Santa Claus.

inspectorudy | July 31, 2017 at 11:56 am

The word “Recess” is repulsive to the American people! Imagine the forces in Afghanistan or Syria saying they were taking a recess for a few weeks off in the middle of a life and death struggle! Congress is a club of spoiled self-centered brats who think the world revolves around them. They are wrong. They work for us and they should not even consider a vacation since they have done no work.

    They will argue that they are not going on vacation, but merely going home to listen to their constituents so they will know how to vote against those people’s interests.

Mr. Mnuchin told lawmakers on Capitol Hill last week he had “no intent” to prioritize payments, which would put him in the uncomfortable position of choosing whether to pay foreign bondholders ahead of retirees or government workers. “I think that doesn’t make sense,” he said. “The government should honor all of its obligations and the debt limit should be raised.”

That’s MnanyChins (Deemocrat, Gold-Sachs) your “conservative” T-rumpian Sec. Of Treasury.

NOT.

T-rump has said that entitlement programs will be fully funded. This is a lie. They cannot continue as is.

“That which cannot continue won’t”.

    No, that’s Mr. Mnuchin refusing to bite on the MSM bait. If he *had* answered the question according to the law (which is Obligations and Bonds first, paychecks second), the press would promptly run out screaming into the streets about how the Republicans are planning on taking away paychecks and stealing the last crumb of bread from the poor.

      Ragspierre in reply to georgfelis. | July 31, 2017 at 1:55 pm

      You mean if he told the truth, and didn’t lie…???

      I dunno… I kinda think that’s what brave people do. So, what can we deduce from MnanyChins and Der Donald’s words?

      That that which cannot continue will be lied about…???

      Gutsy.

Congress should take a recess. That will allow members to go on their taxpayer funded “fact finding” junkets. Since transgenderism and transgender rights are among the most important issues of today for which Congress must debate and enact legislation, I suggest they begin by studying gender dysphoria among the indigenous Korowai tribe of Papua New Guinea.

Article published today in San Jose Mercury News on the $206 billion in unfunded liabilities.

You probably haven’t heard much about the looming pension crisis because elected officials don’t like talking about it and it’s easy for them to kick the can down the road: they can make promises to public employees now that won’t come due until they’re out of office.

But the slow creep of pension costs is crowding out investments in other areas, including education, environmental stewardship, social services, and public transportation. In essence, the state is being forced to default on its social obligations to pay for its pension obligations. If you’re a progressive, fixing this problem may be the most important issue facing the state.

The article lauds Jerry Brown for lowering the projected rate of return on the $330 billion fund from 7.5% to 7%. For comparison purposes only, long term T-Bill rates are less than half that rate.

http://www.mercurynews.com/2017/07/30/steve-westly-california-pensions-are-its-206-billion-elephant-in-the-room/

How much do you want to bet that the “fiscally conservative” Republicans just raise the tab again, like a bunch of Democrats?

Given the toxic environment in Congress these days with Schumer acting as the new harry “NO!” Reid and the Republicans split between the fiscally tight Tea Party who always demand a balanced budget and the rest, I see grid lock coming. I wager Chuck Schumer will also hold an agreement hostage as a bargaining chip to obtain certain concessions from the Republicans who won’t want to give on them. Ultimately, many will happily demand that we allow the US to default on some of our debts just to make a point while failing to realize what would happen if this happened for the results and the aftershocks would be far more severe than they can understand. It could even be the dreaded black swan so many are fearing. I do not look forward to this fall and that is for sure and certain.

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