NEW YORK, NY — The budget deal brokered by Congress this week lets Treasury keep borrowing until February 7 to pay the country’s obligations, and by doing so, avert default.
Does that just tee up Washington for another debt ceiling fight in cold, dark February?
That’s because on February 8 Treasury will still have authority to use the special accounting maneuvers called “extraordinary measures.” Those allow Treasury to keep paying bills without going over the debt limit.
And that can buy Treasury time during a standoff in Congress. Just how much time isn’t known yet.
During this latest standoff, extraordinary measures lasted for roughly five months.
But Treasury won’t necessarily have that much time this winter in part because it typically pays out large amounts of tax refunds in the first few months of the year.
It’s also not clear whether Republicans will even try to force the issue. That strategy didn’t work this time and, besides, 2014 is an election year, noted former Capitol Hill budget staffer Pete Davis, who now run Davis Capital Investment Ideas.
If Republicans choose not to fight, will lawmakers just happily raise their hands to increase the debt limit?
Probably not. It’s more likely they’ll again do what they did this week and “suspend” the debt ceiling.
Yup. You heard that right. They suspended the debt ceiling.
Here’s how it works: The deal effectively allows Treasury to continue borrowing to pay the country’s legal obligations without regard to the debt limit. Then, on February 8, the debt limit will automatically reset to a higher level that reflects how much Treasury borrowed during that “suspension period.”
So today the debt ceiling is approximately $16.7 trillion. If Treasury borrows, say, $200 billion between now and February 7, the limit would be reset at $16.9 trillion on February 8.
Cleverly, the bill also allows the House and Senate, if they have enough votes, to issue a “joint resolution of disapproval” of the debt limit suspension.
That may sound like a recipe for another crisis, but it really isn’t.
First, odds are the Senate wouldn’t pass such a resolution. So it would die there.
But even if it went forward, President Obama could veto it. And overcoming that veto requires more votes than either the House or Senate could likely produce.
In this way, the suspension measure offers Republicans and Democrats who publicly object to a debt ceiling increase an easy-out: They never have to vote directly for or against an increase.
Instead, they can register their disapproval if they want, but it won’t stop Treasury from borrowing and importantly, won’t cause the country to willfully default on its debts.
By Jeanne Sahadi
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