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DEADLINE: October 17, 2013 (Treasury estimate)
The Treasury Department actually reached the current statutory limit on the amount of debt it can issue — the "debt ceiling" — on May 19, 2013. Since then, it has been using "extraordinary measures," such as redeeming securities in federal employee retirement and other funds, to allow it to raise enough cash to pay the government’s bills.
By October 17th, Treasury estimates that these extraordinary measures will run out and we’ll either have to raise the ceiling, or default on some of our obligations. Contrary to some misperceptions, the debt ceiling doesn’t directly affect government spending decisions, it only prevents the Treasury from issuing the debt necessary to pay obligations that have already been incurred through existing policy and legislation. Historically, raising the debt ceiling has been relatively easy, but lately it’s become a more controversial act.
Failing to reach agreement to raise the debt ceiling would be very dangerous. While the government has shut down previously (most recently in 1995), failing to raise the debt ceiling would be uncharted territory. Given the importance of U.S. Treasuries and the U.S. dollar to world financial markets, the result could set off a catastrophic reaction, damaging markets and the global economy. Unemployment could spike and the economy could tumble into a deep recession. And it’s unclear how the government would even function. As opposed to a shutdown, which simply suspends certain non-essential operations of government, a failure to raise the debt ceiling would make the government unable to pay many of its actual obligations.
The Bipartisan Policy Center estimates that if the Treasury exhausts its extraordinary measures on October 17, we would be short about $106 billion over the following 4 weeks and unable to pay about 32 percent of our bills. In that scenario, major unanswered questions include which bills would get paid, which would not, and how that would be determined. And assuming an eventual resolution, it’s unknown what the permanent damage would be, such as an ongoing increase in borrowing costs for the federal government and businesses and individuals.
Putting ourselves in a position like this would be an unnecessary, self-inflicted wound to an already fragile economy. Stating the obvious, our nation would be better served if it would utilize an orderly process to make the actual decisions needed to put our fiscal house in order. The nation needs a comprehensive, bipartisan fiscal plan that stabilizes the debt for the long term.