This article was published by The McAlvany Intelligence Advisor on Monday, July 15, 2019:
Watch for it. It’s coming. A blind man could see it. It’s that moment in time when Treasury runs out of bookkeeping gimmicks and machinations, and finally admits that it has run out of money.
Treasury hit the debt ceiling ($22 trillion and change) on March 2. Treasury Secretary Steven Mnuchin informed House Speaker Nancy Pelosi in May that he was engaging in “extraordinary measures” to keep the government afloat. Last week he announced that he was running out of bookkeeping manipulations and would be forced to delay paying some of the government’s bills, probably – and inconveniently for Congress – during summer recess.
That’s the very last thing a politician wants. He (or she) will be out on the hustings defending his voting record. A vote to raise the debt ceiling is the very last thing he wants to be forced to explain to those he hopes will keep him in office.
It looked for a while as though Congress was going to luck out. The moment of truth was estimated to happen in late September, or October, or even early November. But last week the Bipartisan Policy Center (BPC) spoiled that plan by announcing that, thanks to government spending so far exceeding its income, that moment would arrive right in the middle of summer recess. Washington’s pols were hoping to deal with it only after they returned on September 9. They were hoping to wrap it up inside the budget bill, so that few would notice.
But now it’s likely to be exposed before they leave on July 29. They will be forced to engage in Kabuki Theater, that wonderful form of Japanese classical theater known for its elaborate costumes and dynamic acting. The phrase is also used in political discourse to describe an event characterized more by showmanship than by serious content.
The debt ceiling is a political fiction. The August (or early September) date when the Treasury runs out of money is not. The debt ceiling limits how much money Mnuchin’s Treasury Department can borrow. It only restrains Treasury from issuing new government bonds. It has nothing to do with restraining Congressional spending. History records that the moment has never arrived when Treasury stopped paying Congress’s bills.
There have been some close calls. But Congress, ever vigilant but always late, came to the rescue. It would pass a “continuing resolution” (a CR) to keep the wheels turning, or it would raise the debt ceiling as it has done regularly for decades.
This time will be no different. There will be much wringing of hands and gnashing of teeth. There will be cries from fiscal conservatives (unfortunately, a tiny minority in Congress) that the national debt will soon crush the nation into financial oblivion. There will be demands from Democrats that social spending be increased by the same amount that Republicans increase the military’s budget. There will be cries from Republicans that the Democrats are holding the government hostage by making such demands.
When it hits, there will be a flurry of activity, accusations, noisy pontifications from politicians, and then a backroom deal either to issue another continuing resolution or raise the debt ceiling once again. It’s likely to be buried in the budget package, which is why Congress wants to put this off until the last possible moment.
The media is already preparing citizens for the inevitable. The Hill warned on Wednesday that “Senators are growing anxious that they might have to vote to raise the nation’s debt ceiling in a matter of weeks … [they] had hoped they would be able to avoid the politically painful vote to raise the debt ceiling until the fall and that it could be packaged with other legislation.”
The next day, The Hill used the dreaded “D” word, warning that “if Congress and the White House cannot reach a deal to raise the debt ceiling by the end of the month [July], the government may have mere days to prevent a catastrophic default….”
On Friday, the Wall Street Journal joined in the chorus, also using the “D” word: “If the government can’t borrow more money, the U.S. could be unable to meet all of its obligations … such a default could have severe financial and economic consequences….”
The New York Times invoked the “B” word on Friday, warning that the “Government Could Breach Debt Ceiling” as soon as September, and then quoting from Mnuchin’s second letter to Pelosi.
It’s all political theater. Call it Kabuki Theater. Call it Much Ado About Nothing. But don’t call it serious. The spending will continue until it stops.
The Wall Street Journal: Mnuchin Says Treasury Could Run Out of Cash in Early September
The Wall Street Journal: Debt Limit Deadline Accelerates, Research Group Finds, Raising Pressure on Congress
The Wall Street Journal: After Rancorous Border Fight, Congress Faces Funding Deadlines
The Wall Street Journal: U.S. Could Run Out of Room on Debt Ceiling in Late Summer, Mnuchin Says
The New York Times: Government Could Breach Debt Ceiling in September, Mnuchin Warns
The Washington Post: The Debt Ceiling