The Daily Update: It's Debt Ceiling Time Again

As regular as clockwork the battle over the US debt ceiling is brewing. Last week the Congressional Budget Office (CBO) said that at the current rate of spending, the Treasury Department will run out of money around the end of October. ‘If that occurred, the government would be unable to pay its obligations fully, and it would delay making payments for its activities, default on its debt obligations, or both’ the CBO warned. It has also started to worry the Treasury Secretary. Janet Yellen has written to Congress urging them to raise the debt ceiling as soon as possible. She warned that there are some scenarios in which emergency measures to stave off the debt limit could be exhausted ‘soon after Congress returns from recess’ in September.

However, Mitch McConnell, the Senate Minority Leader, seemingly believes that all his Republican colleagues will vote against raising the ceiling. The Democrats need ten Republicans to cross over in order to get the 60 votes needed to overcome a filibuster. Some of the GOP members are trying to tie raising the debt ceiling to enacting spending cuts. Seems a little rich given that the GOP supported the debt ceiling hikes during Donald Trump’s presidency, and indeed, at least in part, the ceiling needs to rise due the spending promises passed with Republican votes.

The first debt ceiling fight began in 1953 when President Eisenhower faced a revolt by the Republican-controlled Senate. Eisenhower wanted more funding to build the national highway system, however, Congress had become alarmed at the build-up in the national debt during WWII. After much wrangling and some emergency measures taken by the Treasury, the debt ceiling was raised in 1954. Once the ceiling is reached, the Treasury cannot issue any new debt, however, as we have seen in the past, that does not mean that the US government can no longer fund itself. Through various sleights of hand and accounting tricks, the Treasury can continue making payments by so-called ‘extraordinary measure’. As those measures become exhausted, however, there is increased risk of a ‘technical default’. Finally, it is also interesting to note that since 1959, the ceiling has been raised more than 80 times under administrations from both parties.