Publishers Corner ... Brown on Business

October 4-10, 2021

Congress prepares for duplicitous debt ceiling two-step as U.S. Treasury runs out of cash

By Wesley Brown

Here we go again.

About every few years, your duly elected representatives and senators in Washington, D.C., come together for an awkward tango called the Debt Ceiling Dance.

On Tuesday, U.S. Treasury Secretary Janet Yellen sent communications to congressional leaders in the House and Senate highlighting an earlier warning where she essentially said if Congress does raise the U.S. debt ceiling quick and fast then the U.S. economy will fall into a depression so deep it would make us forget about the COVID-19 pandemic.

In her latest missive, the former Federal Reserve chair explained that the U.S. Treasury would run out of cash sometime during the month of October after all other extraordinary measures to generate cash for the U.S. government to pay its bills would most likely be exhausted.

“We now estimate that Treasury is likely to exhaust its extraordinary measures if Congress has not acted to raise or suspend the debt limit by October 18. At that point, we expect Treasury would be left with very limited resources that would be depleted quickly,” said Yellen. “It is uncertain whether we could continue to meet all the nation’s commitments after that date. While this is our best estimate, the federal government’s cash flows are subject to unavoidable variability.”

As an example, Yellen said the government’s daily gross cash flow over the past year, excluding any financing vehicles, has averaged about $50 billion per day and now exceeds $300 billion. As a result, she said, it is important to remember that estimates regarding how long remaining extraordinary measures and cash may last can unpredictably shift forward or backward, which could spook Wall Street and other global financial markets.

“This uncertainty underscores the critical importance of not waiting to raise or suspend the debt limit. The full faith and credit of the United States should not be put at risk,” warned Yellen, who previously served as the Federal Reserve chair before former President Donald Trump refused to reappoint her to lead the nation’s central bank in February 2018.

Yellen also warned the nation’s congressional leaders – including House Speaker Rep. Nancy Pelosi and Senate President Sen. Chuck Schumer as well as respective House and Senate Minority Leaders Rep. Kevin McCarthy and Sen. Mitch McConnell – that waiting until the last minute to raise the nation’s debt ceiling could undermine consumer confidence and financial markets worldwide.

“Furthermore, we know from previous debt limit impasses that waiting until the last minute can cause serious harm to business and consumer confidence, raise borrowing costs for taxpayers, and negatively impact the credit rating of the United States for years to come,” said Yellen. “Failure to act promptly could also result in substantial disruptions to financial markets, as heightened uncertainty can exacerbate volatility and erode investor confidence.”

But waiting until the last minute and playing the “The Boy Who Cried Wolf” game is something we have all come to expect from our honorable leaders from both parties in Washington, D.C. Under former President Donald Trump, the debt ceiling was raised two times between 2017 and November 2020. Although the Trump administration used other methods to raise the administration’s spending limits, the nation’s debt under his helm jumped from about $20 trillion to $27 trillion, according to the nonpartisan Congressional Budget Office (CBO).

Here’s the back story. Congress has tinkered with or raised the debt ceiling, the statutory limit on the amount of money the U.S. government is authorized to borrow to meet its legal obligations, a total of 78 times since 1960, 49 times under Republican presidents and 29 times under Democratic presidents.

Under the U.S. Constitution, the debt ceiling amount is set by law and has been increased over the years to finance the government’s operations. Today, there is no statutory limit on the issuance of new federal debt because the Bipartisan Budget Act of 2019 enacted in August 2019 suspended the limit through July 31, 2021.

On August 1, the debt limit was reset to the previous ceiling of $22 trillion under former President Trump, plus the cumulative borrowing that occurred during the period of suspension. Since Congress failed to extend the suspension or increase the limit, existing statutes allowed the Treasury to declare a “debt issuance suspension period” and to take “extraordinary measures” to borrow additional funds for a period of time without breaching the debt ceiling.

Since August, Yellen and the Treasury have borrowed, begged and employed “extraordinary measures” to continue financing the government’s activities for a while. However, the Treasury is expected to run out of cash sometime in the first quarter of the next fiscal year, which begins on Oct. 1.

On Sept. 21, the Democratic majority in the House of Representatives with a handful of GOP votes approved a bill to keep the government funded and raise the debt ceiling. However, when the bill arrived in the U.S. Senate the following week, Republicans blocked that bill with a Oct. 1 deadline and a government shutdown looming this week.

What is so dishonest from both Democrats and Republicans is their well-worn arguments to support or reject raising the debt ceiling based on who is in the White House, then blaming the opposition for the nation’s rising debt, which the CBO says has reached nearly $30 trillion. After the House vote on Sept. 21, Rep. French Hill, R-Little Rock, expressed disgust with the passage of the short-term spending bill.

“Rather than a simple continuation of government spending to give Congress time to negotiate the full year spending bills, House Democrats are instead adding a suspension of the debt ceiling for more than a year and paving the way for further spending that central Arkansans will have to pay for,” said Hill. “Worse, Speaker Pelosi is appeasing to her progressive members, and has removed previously agreed upon funding for the Iron Dome, weakening Israel’s, our strongest ally in the region, ability to defend itself.”

On the other hand, Pelosi and Democrats are hoping to raise the debt ceiling to have enough money to pay for President Joe Biden’s $1 trillion infrastructure plan and a $3.5 trillion spending package to fund his “Build Back Better” agenda. That broad spending program would pay for Biden’s ongoing efforts to eradicate COVID-19 and further fund his broad plan to create blue-collar jobs, cut taxes, and lower costs for working families by taxing the nation’s wealthiest individuals and corporations.

In defending the Democratic plan, Pelosi countered arguments made by Hill and other Republicans by saying that the continuing resolution to raise the debt limit is modeled after similar legislation proposed by former McConnell and GOP senators who were in control under President Trump and former President Barack Obama.

“Since 2011, each of the seven times that the debt limit has been needed to be addressed, Congress has done so on a bipartisan basis, including three times during the Trump Administration, when the debt, during the Trump Administration, rose by $7.8 trillion,” Pelosi argued on the House floor. “Again, much of that incurred in terms of the full – honoring our commitment on COVID, but a very big chunk of it in a Tax Scam that gave 83% of the benefits to the top one percent. It should be noted that just three percent of the current debt has been accumulated under the Biden Administration.”

The thing is neither party has the bona fides to make an argument that is not dripping with hypocrisy. Like Pelosi said, Trump and the Republican Party racked up so much U.S. debt that the party’s conservative budget hawks in the House and Senate went mute.

For instance, Trump’s $1.7 trillion Tax Cut and Jobs Act, which reduced the U.S. corporate tax cut rate from 35% to 21%, was forecasted to increase government revenues and double U.S. GDP growth as billions in tax savings trickled into the U.S. economy. Instead, that corporate tax has increased budget deficits  since the expected spike in revenues did not offset the resulting gain in U.S. government debt as corporations used those tax cuts to pay pricey dividends and fund higher executive salaries.

Then came COVID-19, which was declared a global pandemic in March 2020. Under both Trump and Biden, Congress has approved two almost identical emergency spending packages that together have exceeded $4 trillion. The first $2.2 trillion Coronavirus, Aid, Relief and Economy Security (CARES) Act was passed without much resistance by the U.S. House and Senate on March 27, 2020, weeks before the U.S. economy hit a wall and U.S. Gross Domestic Product growth declined nearly 40% in the second quarter as all 50 states deployed shelter-in-place, social distance and mask mandates.

Around Christmastime, Congress also passed another $900 billion COVID-19 relief package that extended the Paycheck Protection Program and other COVID-19 relief initiatives started by Trump.

Only months after Biden took office, Congress easily passed another emergency COVID-19 relief package, called the American Rescue Plan Act, that put U.S. taxpayers on the book for another $2.2 trillion. Today, all 50 states and federal agencies nationwide are looking to allocate those COVID-19 funds amid the ongoing pandemic. By law, ARP funds must be obligated through December 31, 2024, and the deadline for funds to be spent is December 31, 2026.

Last month, the CBO conservatively projected that if the federal budget deficit equals $3 trillion in fiscal year 2021 and averages $1.2 trillion per year over the 2022-2031 period, federal debt held by the public is projected to reach 103% of GDP at the end of fiscal year 2021 and 106% of GDP, the highest level in the nation’s history, in 2031.

Sometime this week, Republicans and Democrats will get together not to address these critical budget issues but to kick the can down the road until the next debt ceiling comes around again in a few years. Then this same dance will start all over again.

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Daily Record Publisher Wesley Brown won first-place in the 2021 Arkansas Press Association’s Better Newspaper Editorial Contest for top news and political column for large weeklies.