Oh no! US is near debt ceiling again. So why isn't anyone panicking?
| Washington
The US Treasury is just days away from being unable to borrow any more to pay federal bills, and the stock market isn鈥檛 happy.
The good news: So far, at least, those two things don鈥檛 have anything to do with one another.
Whatever else investors are worried about 鈥� sending stock indexes reeling Monday 鈥� it鈥檚 not fear that the US will default on its national debt or be unable to make good on other obligations.
It鈥檚 not that the nation鈥檚 debt limit is unimportant for the wider economy. Rather, it鈥檚 that investors believe Congress will raise the debt ceiling without the kind of brinkmanship and uncertainty that dogged the issue since Republicans took control of the House of Representatives in 2011.
The widespread assumption: Republicans聽were burned after provoking a partial government shutdown in 2013 and, in an election year, they don鈥檛 want to risk being burned again.
If that assumption comes into question in coming days, the debt limit will certainly join Wall Street鈥檚 worry list.
Treasury Secretary Jacob Lew warned bluntly on Monday that after Feb. 7, when a temporary suspension of the debt limit ends, the government will be able to use various gimmicks for 鈥渙nly a brief span of time鈥� to keep paying all bills, a span that will probably last essentially until the end of the month.聽
鈥淲ithout borrowing authority, at some point very soon, it would not be possible to meet all of the obligations of the federal government,鈥� he said, in an appearance at the Bipartisan Policy Center in Washington.
That would obviously be a problem for the government and its creditors. But it鈥檚 also a problem for the whole world economy, because any shaking of confidence in Treasury bonds ripples quickly through other financial assets.
For now, the turbulence in the stock market reflects debate about how strong the US economy's recovery is (a manufacturing sector report on Monday looked weak) and how bad a slowdown in emerging-market nations, driven by tighter financial conditions, will be.
On the debt limit, Secretary Lew echoed the optimistic view that many political analysts share. Even as he warned of the risks 鈥� 鈥淭ime is short,鈥� he said 鈥� he responded to a question from the audience by saying that to approach the brink of a default on US obligations is 鈥渘ot acceptable to the leadership on either side, which is why I鈥檓 confident [the issue] will be addressed.鈥�
Many finance experts say it would be more rational if Congress addressed questions of borrowing, along with spending and taxing, as part of a regular budget process.
Instead, what鈥檚 evolved is a system in which lawmakers pass spending bills in excess of tax revenue at one time and then confront the need to borrow money separately, when they periodically confront a self-imposed borrowing limit on total public debt.
Both liberal and conservative finance experts say that simply refusing to raise the debt ceiling is not an option. If the goal is to restrain the growth of debt, then the right answer is the change spending or tax policy on the front end.
To not raise the debt limit would amount to refusing to pay bills that are already coming due 鈥� from federal salaries to Medicaid payments or money due to federal contractors. Although both parties have used debt-limit deadlines as leverage for negotiations over fiscal matters in the past, this is why it鈥檚 hard to sustain a strategy of brinkmanship on this issue 鈥� as Republicans found out the hard way last year.
A game of 鈥渃hicken鈥� holds suspense only if there鈥檚 some real uncertainty about which side will ultimately back down, said Paul Sheard, chief global economist at Standard & Poor鈥檚 Rating Services, at a debt-limit panel discussion Monday following Lew鈥檚 remarks.
After its tea party wing mounted an insurgency last year, seeking concessions from President Obama on health-care policy and seeking to use the budget or the debt limit as leverage, the Republican Party ultimately had to back down.
The bruising loss hasn鈥檛 left an appetite for another epic battle over the issue. Add the fact that it鈥檚 an election year, and it explains why no one seems very worried about an impasse this time around.
Still, a drama needs to play out somehow in coming days or weeks, with both sides seeking a public-relations edge on fiscal matters.
And somehow, one of these years, America will have to wrestle more seriously with how to curb the long-term rise of its public debt.
Lew, for his part, said current trends of decline in budget deficits (as a share of the national economy) give Congress at least some breathing room before that becomes a crisis.
