U.S. Government Could Max Out Its Credit by Early September
If things go as analysts at the Bipartisan Policy Center expect, the U.S. government will face a heightened risk of defaulting on its $22 trillion debt in early September. That’s when the extraordinary measures employed by the Treasury Department, designed to keep the nation’s total public debt outstanding within a narrow range of that credit limit, will no longer be effective.
The Bipartisan Policy Center now forecasts a risk that the debt limit “X Date”—the date when the federal government can no longer pay all of its bills in full and on time—could occur in the first half of September. This “X Date” risk falls earlier than BPC’s previous projection range, based on new data and analysis.
As the summer progresses, the Treasury Department will continue to expend its cash on hand and extraordinary measures—legally permissible accounting maneuvers that enable limited additional borrowing authority when the debt limit is reached, as it was in March.
“The latest data reveal a serious risk that the ‘X Date’ could fall in early September, particularly if federal revenues underperform,” said Shai Akabas, BPC’s director of economic policy. “The alignment of certain payments in the first two weeks of the month, prior to when Treasury will receive a cash influx of quarterly tax payments, could exhaust Treasury’s borrowing room.”
In other words, because the U.S. government’s debt has been running so close to the statutory debt ceiling for several months already, a default to the nation’s creditors could occur simply because cash flow became unexpectedly pinched during the first half of September.
Because Congress, which has the ability to increase the federal government’s borrowing authority, will be going on a prolonged recess after the end of July, Akabas is strongly advocating that legislators take action now to boost the government’s self-imposed credit limit before they go on their August holiday.
There is an alternative approach that might more effectively deal with the situation, although it’s not one that a bipartisan majority of Congress members have shown any signs of considering this year. Because the federal debt ceiling problem lies entirely on the spending side of the U.S. government’s ledger and not on the revenue side, Congress could provide President Trump with the option of selectively furloughing a small handful of non-essential federal employees beginning in September.
The small handful of non-essential federal employees to whom I’m referring are the bureaucratic administrators responsible for executing the federal government’s annual fiscal year-end spending spree, where billions of dollars are spent on things that most Americans would consider non-essential. Senator Joni Ernst (R-IA) tallied some of the items bought during their 2018 spend-a-thon:
Some of the last-minute purchases by binge buying bureaucrats included:
- $4.6 million for lobster tail and crab;
- $2.1 million on games, toys, and wheeled goods;
- $1.2 million for sponsorship of Professional Bull Riders, LLC.;
- $308,994 on beer and booze;
- $201 million on advertising;
- $53,004 for china tableware;
- $40,379 on clocks;
- $24,993 for candy and candy bars;
- $17,900 for five tons of tater tots, ten tons of dry pinto beans, and five tons of dry pasta;
- $11,816 on a commercial foosball table; and
- $9,341 on a Wexford leather club chair.
(Source: OpenTheBooks.com, Use-It-or-Lose-It Oversight Report)
Akabas is calling for the debt ceiling to be hiked largely because the U.S. government cannot precisely control how much it can collect in taxes. But it can absolutely control 100 percent of its spending.
Doesn’t taking action on the one thing over which it has absolute control make more sense? Wouldn’t that step provide a greater margin of safety, so that legislators could return from their August holidays without facing an immediate, man-made debt ceiling crisis?
Why wouldn’t a bipartisan majority in Congress agree with that policy option?