First, They Came for the Pension Funds
Today makes it official:
The U.S. government officially hit the federal debt limit Monday, forcing the Treasury Department to make moves to avoid a default and ratcheting up pressure on lawmakers to reach a deal to increase it.
Treasury Secretary Timothy Geithner informed lawmakers in a Monday letter of specific steps he was taking to avoid a default.
Ezra Klein takes us on a guided tour of the next 11 weeks:
… The first evasive maneuver, begun about 10 days ago, was for the Treasury to stop offering a certain type of debt that state and local governments use to smooth out their finances. Today, the Treasury will begin to borrow from the pension workers of federal employees. And the emergency measures only get worse and more disruptive from here. If you want more on the nuts and bolts of those, the Wall Street Journal has a nice graphic listing some of the Treasury’s likely moves.
There’s not been much evident progress towards a deal in recent days, though there’s been an escalation in Republican demands from the Senate side (McConnell wants Medicare cuts but no tax increases) and a plea from the Obama administration for Democrats to stop adding new demands onto an already overburdened negotiations process. But the outlines of a deal have been relatively obvious for some time: For better or worse, the final deal will be heavily tilted towards spending cuts, and accompanied by some sort of procedural mechanism to make future deficit reduction more likely.
To some degree, that’s backwards. The smartest deal going forward would be one in which the two parties stuck to PayGo — or, if you want to reduce the deficit, SaveGo — and thus figured out how to pay for tax cuts and spending increases when those tax cuts and spending increases were passed rather than when the bills came due. But given that the House Republicans replaced PayGo with a weaker policy in which spending cuts had to be paid for but tax cuts didn’t, that Congress is really interested in avoiding future debt-ceiling showdowns. The minority would very much like to use the debt ceiling to make changes to government that they’d also like to make in the absence of the debt ceiling. But it’s not at all clear that the debt ceiling has convinced them to make changes to government that they wouldn’t otherwise support, and if they’d supported PayGo in the first place, we’d be in much better shape today.
By early August, Mr Geithner says, the government will have run out of ways to stiff people without defaulting. At that point, very bad things will happen. Luckily, leaders of both parties agree that the limit should be increased. But until it’s raised, it isn’t raised, and the worst remains a possibility, however unlikely.
Doug Mataconis (emphasis in original):
If you’re looking for a reason why the public is frustrated with the political system, this would be it. We’ve known for months now that this day would come. Heck, John Boehner was talking about it only days after the 2010 election ended, and acknowledging that the debt limit would have to be raised. …
Instead of doing that, though, we’ve had four months of political posturing on both sides of the aisle. This is a deal that should have been done before today and instead we’re going to drag this out through the summer and, despite what Sperling says, I’m absolutely certain that this matter will not be resolved until the last possible minute. Because that’s how we do things in this country. …
What we have to face, though, is that the Republicans have no problem with destroying the economy. A slipping economy is the one thing, now, that would guarantee Obama’s loss of the presidency in 2012. So Republicans are very willing to risk putting the economy in the tank. There’s no question but that this is lethal game-playing. Republicans have turned their eyes away from reality and the people they’re supposed to serve. …
The Lonely Conservative isn’t worried:
We’ve reached the debt limit, and we’re all still alive. I looked out the window this morning to see if the sky was falling, but it’s still up there. (It is dumping a lot of rain, which is probably unrelated, but Democrats may try to spin it otherwise.) Apparently, it really isn’t as bad as they’ve been telling us it would be, seeing that the folks in Congress have taken a lot of vacation time lately, and they’re still no closer to a deal than they were before.
Of course, Democrats never said the government would fall apart five minutes after the debt limit was reached, but it’s easier to be glib than serious, and Republicans in Congress have always been perfectly willing to play a game of chicken with the precipice (emphasis is mine):
Treasury Secretary Timothy F. Geithner has warned for months that the government would soon hit the $14.3 trillion debt ceiling — a legal limit on how much it can borrow. …
Geithner, who has already suspended a program that helps state and local government manage their finances, will begin to borrow from retirement funds for federal workers. …
The maneuver buys Geithner only a few months of time. If Congress does not vote by Aug. 2 to raise the debt limit, Geithner says the government is likely to default on some of its obligations, which he says would cause enormous economic harm and the suspension of government services, including the disbursal of Social Security funds.
Many congressional Republicans, however, have been skeptical that breaching the Aug. 2 deadline would be as catastrophic as Geithner suggests. What’s more, Republican leaders are insisting that Congress cut spending by as much as the Obama administration wants to raise the debt limit, without any new taxes. Obama is proposing spending cuts and tax increases to rein in the debt.
“Everything should be on the table, except raising taxes,” House Speaker John Boehner (R-Ohio) said on CBS’s “Face the Nation.” “Because raising taxes will hurt our economy and hurt our ability to create jobs in our country.”
The Obama administration has warned that it is dangerous to make a vote on raising the debt limit contingent on other proposals. But Boehner is demanding that Congress use the debt vote as a way to bring down government spending.