The poison pill in the Republican debt ceiling proposal

Here’s something to keep in mind over the course of the next few days of to-ing and fro-ing between Congress and the White House: the United States has already hit the debt ceiling.

In fact, it reached the $16.699 trillion legal limit for the national debt all the way back in May. Since then, however, the US Treasury has been carrying out a whole host of extraordinary measures to try to ensure that the Federal Government can carry on paying its bills while that total national debt figure goes no higher. It’s the governmental equivalent of searching around for spare change at the back of the sofa because your credit card company won’t extend your borrowing limit.*

But this fiscal contortionism can last only so long before the Treasury has to return to the markets to borrow more. Jack Lew, the Treasury Secretary, has, for some time, put the date at which these measures run out as October 17^th. He was, for instance, making this point forcefully this morning on Capitol Hill.

The fact that Congress must take Lew’s word for it on when, precisely, this final, final deadline is has been a cause for great frustration among Republican Congressmen. The nagging suspicion is that the Treasury could, if it really wanted, deploy all sorts of other emergency measures even after October 17^th to keep the Federal Government afloat.

Why, you might reasonably ask, does all this matter? Well, it’s at the very centre of the latest set of demands from Republican Congressmen.

They have offered the President a deal whereby the debt ceiling deadline will be extended for six weeks (which would take them to November 22^nd if they pass the bill tomorrow, Friday). This would remove any threat of default for that period and, from what we can glean, given details are scarce on the ground, the numerical debt ceiling figure would have to be increased.

However, there are, of course, quid pro quos. The first is that the President must return to the table for compromise negotiations on a whole range of spending questions – though there are no specific demands so this seems unlikely to be a dealbreaker. The second is that the Treasury must no longer have the right to carry out the “extraordinary measures” that have given it a few months’ breathing room – both this time around and in all future debt ceiling deadlines.

In other words, the Republicans seem to be proposing (and see this WSJ story for the detail on the deal) that the debt ceiling will henceforth become a far more hard-and-fast deadline that the Treasury will no longer have the power to efface with its own emergency spending controls. So although the deal may look promising and generous at first glance, this particular element is likely to be a real sticking point for the Treasury – possibly even a poison pill that could scupper the deal.

After all, no Treasury likes to be deprived of the right to manage its own financial affairs – and that appears to be the objective of this proposal.

Meanwhile, the Government shutdown continues, and, if this deal does get taken up, giving rise to a further six weeks of horse-trading, looks likely to continue for quite some time.

* Technically-speaking the Treasury is using money it usually reinvests for current spending; the plan is to put that cash back where it ought to be once the debt ceiling has been raised.