A new Congressional Budget Office (CBO) report warns of grave difficulties if Washington can’t agree on a new federal debt limit by October or November.
As in the past, the Treasury is buying more time on the debt limit with what it calls “extraordinary measures.” While CBO says these measures could last until sometime in October or November, it cautions that precision on this is difficult.
Once the extraordinary measures run out, the Treasury would only be able to borrow to replace maturing debt. “That restriction,” CBO says, “would severely strain the Treasury’s ability to manage its cash and could lead to delays of payments for government activities and possibly a default on the government’s debt obligations.”
As the government neared the debt ceiling in 2011, Democrats and Republicans reached a last-minute deal. But the political brinksmanship sent the stock market into a tailspin and caused Standard and Poor’s to lower the federal government's credit rating. The deal also postponed many tough decisions.
Two years later, Congress continues to delay decisions on spending cuts, revenue increases and the debt ceiling. The No Budget, No Pay Act of 2013 suspended the ceiling from Feb. 4 through May 18, which CBO says effectively raised it to nearly $17 trillion, up from $16.7 trillion.
There is no question that the debt limit must be raised. This is true under the House budget, the Senate budget, the President’s budget or the status quo. With an uncertain deadline and potentially dire economic consequences for failure, Congress should begin working now towards a compromise that raises the debt ceiling and reduces future deficits.