By Kate Davidson
The clock starts ticking this weekend for Congress to reach a deal to raise the federal borrowing limit, or debt ceiling, before the government runs out of money to pay its bills sometime this fall.
Congress voted in February 2018 to suspend the borrowing limit for about a year. That limit is set to be reinstated Saturday, meaning the Treasury won't be able to borrow more money until lawmakers suspend the ceiling again.
Treasury Secretary Steven Mnuchin told Congress Feb. 21 that beginning Saturday, the Treasury would begin using extraordinary measures to conserve cash and keep making on-time payments to bondholders, federal benefit recipients and others.
Those measures, such as suspending the sale of state and local government securities and redeeming certain investments in federal pensions programs, are expected to last until around the end of September or early October, according to a Congressional Budget Office estimate this week. After that, the government could begin to miss payments and default on its debt unless Congress votes again to suspend or increase the limit.
Down-to-the-wire debt-limit negotiations in 2011, 2013 and 2015 rattled investors and raised concerns that the U.S. could default on its debts.
"Everybody hopes we can work together and make a positive deal and that it won't come to that," White House economic adviser Kevin Hassett said in a CNN interview Friday, adding that Congress has plenty of time to reach an agreement. "It's almost like the whistle blows in March and then the race lasts into the early fall because of all the special measures the government can take," he said.
In recent years, the debt ceiling hasn't been the high-stakes drama it was during the Obama administration, when Republicans in Congress argued any increase in the debt limit should be paired with spending cuts.
Lawmakers voted in February 2018 to suspend the limit as part of a two-year budget agreement to increase spending by nearly $300 billion over caps enacted in 2011. That move came after two shorter suspensions at the end of 2017.
Though the latest deal came together following two brief government shutdowns in early 2018, the effort to raise the borrowing limit didn't face widespread opposition. Since the last suspension, federal public debt has risen by roughly $1 trillion, bringing the total to a record $22 trillion.
One factor complicating the debt-limit increase is timing. Lawmakers must also negotiate a new agreement to set top-line spending levels for the government by Sept. 30, or face the return of strict spending caps, known as the sequester.
Rep. John Yarmuth (D., Ky.), the chairman of the House Budget Committee, said that lawmakers might try to include the debt-ceiling extension as part of the budget negotiations but both Democrats and the White House would support a debt-limit increase without any other strings attached.
"I'd like to see a debt-limit extension as part of a caps deal," Mr. Yarmuth said. "We'd all prefer to see a clean deal. I know the administration wants one."
Both President Trump and Mr. Mnuchin have signaled their support for making it easier to raise the borrowing limit, or eliminating it altogether.
As in the past, Congress will likely delay action on the debt limit until much closer to the so-called X date. In the meantime, the cost of waiting to raise the limit will begin to add up.
The standoff over raising the debt limit boosted the Treasury's borrowing costs by about $260 million in 2011 and $230 million in 2013, according to 2017 research by Federal Reserve economists. The debt-limit fights raised yields on Treasury securities regardless of their maturity by 0.04 percentage point in 2011 and 0.08 percentage point in 2013, on average, before the expected date of a government default. Yields dropped once the standoffs were resolved.
--Kristina Peterson contributed to this article.
Write to Kate Davidson at firstname.lastname@example.org