Congress unfazed by ‘extraordinary measures’ on debt
WASHINGTON—The use of extraordinary measures has become such a routine Treasury Department response every time the federal government approaches its borrowing limit that it’s clear the phrase has done little to persuade Congress to avoid the practice.
The measures nevertheless can have a cost even when Congress passes legislation to raise the debt limit and avoid a default on government obligations. Lawmakers are again approaching a debt limit deadline, this one on Sept. 29. And the Treasury has once again implemented extraordinary measures to marshal funds without hitting the ceiling.
Markets get nervous as such deadlines approach, demanding higher interest rates to reflect the greater default risk or avoiding the securities altogether and reducing the market liquidity that makes the U.S. government debt the benchmark for borrowing costs around the world.
“The idea that people might be avoiding certain Treasuries or have any discomfort with anything that is backed by the full faith and credit of the United States, is very unnerving,” said Susan J. Irving, a director who oversees budget and debt work at the Government Accountability Office. “People hold Treasuries almost the way they hold cash. It’s that safe.”
Federal watchdogs and outside groups note another irony: The longer Congress and Treasury temporarily prevent more federal borrowing—by using extraordinary measures and bringing the federal government closer and closer to the debt ceiling—the more costs accrue in the longer term than if they raised the borrowing limit without argument.
The Bipartisan Policy Center said in a report Thursday that the nervousness is appearing now and that borrowing costs are rising. It cited a July auction of three-month Treasury bills that showed a spike in interest rates that market reports attributed to worry about the debt limit debate.
“Markets have nonetheless started pricing such risk into the value of Treasury bills that mature shortly after the projected ‘X Date,’” the report said, referring to the date when the Treasury exhausts its extraordinary measures.
Shai Akabas, director of economic policy for the center, told CQ Roll Call the bills will mature in October, after Congress should have resolved the debt limit issue. “When they come due, they’re going to have to pay higher interest costs to the investors,” he said.
In a measure of the stakes, politicians’ rhetoric is also ratcheting up. President Donald Trump criticized Speaker Paul D. Ryan and Senate Majority Leader Mitch McConnell Wednesday for not raising the debt limit in a separate veterans bill. The president said that left a “big mess.” Ryan acknowledged later in the day that congressional leaders considered doing so.
Trump’s spokeswoman said Thursday that the president supports a clean debt ceiling increase, but many Republicans in the House want to see budget policy changes in legislation that raises the debt limit.
“We can and should couple an increase in the debt ceiling with budget reforms—including entitlement reforms—that change the trajectory of our ever-increasing debt,” Rep. Tom Cole, R-Okla., said in a recent newsletter.
Treasury Secretary Steven Mnuchin has called throughout the summer for a clean increase in the nation’s debt limit. Mnuchin first ordered the last-ditch accounting jujitsu known as extraordinary measures in March.
He referred to them last week as “magic super Treasury powers.” Mnuchin says Congress has until Sept. 29 to raise the debt limit.
Moody’s Investors Service, in a report Thursday, noted the catastrophic consequences of a default, but also said it didn’t expect that to happen. The credit rating company said its “Aaa” rating “reflects our view now, as in past episodes, that the ceiling will ultimately be raised.”