Any confrontation over the nation’s debt ceiling is now unlikely until after Labor Day.
The government will hit the limit of how much it’s allowed to borrow this weekend, but Treasury Secretary Jacob Lew said in a letter Friday that “extraordinary measures” likely would allow the nation to continue paying its bills without more borrowing “until after Labor Day.”
That means that any war over the debt limit – one that could involve more restrictions on federal spending and perhaps the imposition of higher taxes – is probably not going to occur in earnest this summer.
Two years ago, that fight not only led to a tense showdown between the Obama White House and congressional Republicans, and ultimately a debt-reduction deal, but also led to a downgrading of the country’s AAA credit rating, something it had enjoyed for 70 years.
Part of the new breathing room results from stronger than anticipated tax receipts and dividends from mortgage titans Fannie Mae and Freddie Mac. But, Lew warned, “Treasury is not able to provide a specific estimate of how long the extraordinary measures will last.”
The debt ceiling was temporarily suspended earlier this year through Saturday. Currently the national debt is $16.73 trillion.
Lew warned that Congress should not see the extra time as reason not to act to raise the limit, which eventually will have to go up. “Congress should act sooner rather than later to protect America’s good credit and avoid the potentially catastrophic consequences of failing to act until it is too late,” Lew advised.
“The global economic leadership position enjoyed by the United States rests on the confidence of Americans and people around the world that we are a nation that keeps its promises and pays all of its bills, in full and on time. Breaching that trust would do irreparable harm to the economy and the American public,” the secretary warned.
There has been little movement in Congress toward any kind of debt ceiling-related deal, nor has there been any serious effort to get a compromise on reducing deficits. Both the House of Representatives and the Senate passed versions of a fiscal 2014 federal budget, but they are substantially different proposals, and negotiators have not been named to iron out a compromise.
The urgency has been diluted by a series of factors, notably an estimate earlier this week by the nonpartisan Congressional Budget Office that this fiscal year’s deficit is likely to be smaller than anticipated. The CBO pegged this year’s shortfall at $642 billion, down about $200 billion from what it had projected in February. It would be the smallest annual deficit since 2008.
Any debt limit fight, though, could coincide with the end of the current round of automatic spending cuts, or sequester, on Sept. 30. The next round begins with the new fiscal year.
The sequester is being blamed for lackluster growth, which has held the U.S. economy back with declines in government spending, particularly defense spending, an important part of the nation’s economic activity
House Republicans want to use an increase in the debt limit as a vehicle for more spending cuts, but Lew warned in his letter that deficit reduction negotiations “are separate from any debate over the debt limit.” House Speaker John Boehner, R-Ohio, had no comment Friday.