August 1, 2014

Lawmakers Should Avoid Debt-Limit Dramatics

  • The national debt has grown significantly in recent years due to rising annual deficits. A deficit occurs in any year the government spends more...

After being suspended earlier this year, the federal debt limit is scheduled to come back into force within the next few days, underscoring the need for bipartisan cooperation to avoid another round of market-rattling political brinksmanship later this year.

Treasury Secretary Jacob Lew said Friday that the government could rely on its predicted cash flow and “extraordinary measures” to push the “effective deadline” for raising the limit back until at least Labor Day.

The additional time is also partly because of spending cuts, higher tax receipts and large anticipated payments from housing agencies Fannie Mae and Freddie Mac to the Treasury in June.

The Bipartisan Policy Center (BPC) recently projected that the government would still be able to pay its bills through sometime in October without congressional action. The BPC cautioned, however, that any projection this far in advance is “highly uncertain.”

House Republicans passed legislation last week that would supposedly enable Washington to continue paying bondholders and sending out Social Security payments even if the Treasury could no longer finance the rest of the government. The legislation, expected to die in the Senate, reflects a chaotic approach to federal budgeting as well as unconventional notions about default that global investors are under no obligation to accept.