- Congress has only weeks to pass a bill to raise the US government’s debt ceiling and avoid a technical default.
- The US Treasury will have “almost zero cash going into September” if Congress does not act, according to an analysis by Capital Economics, a research group. Currently, the Treasury is down to its last $US215 billion.
- Treasury secretary Steve Mnuchin said that without a debt ceiling increase the government will run out of money by September, before lawmakers return from the recess.
- Democrats and Republicans in Congress have been meeting to agree a deal before Congress breaks for the August recess.
- House Speaker Nancy Pelosi said Wednesday that she wants to bring a bill before the House by July 26, the last day the chamber will meet before the August recess.
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In August, lawmakers in the US Congress will take a break from their bipartisan disputes and backroom dealmaking for the summer recess.
But an economic time bomb is ticking.
Before then a complex bill that has so far received little attention must pass the House and the Senate – and failure to get it through could be highly negative for the US economy.
Lawmakers from both sides have to agree a bill that would allow the federal government to raise its debt limit – avoiding a technical default on payments the government has already agreed to make.
That scenario could – potentially – lead to government employees and contractors going unpaid, a downgrade in the credit rating of US debt, and wild swings in the equity and debt markets. The US previously weathered debt ceiling crises in 2011 and 2013. While both were ultimately resolved, normality was not restored until after ratings agencies downgraded US debt from its AAA status and the stock market took heavy hits.
The upper amount of debt the government is allowed to carry is set by Congress, and changes periodically as spending bills come due. Following the Trump administration’s tax cuts, the current $US22 trillion ceiling was hit in March.
Treasury secretary Steve Mnuchin has warned that with no deal in place, the government would run out of money in September, before Congress returns from the recess, as its exhausts “extraordinary measures” it has used to keep the money flowing since March.
Market observers are jittery, with divisions between Democrats and Republicans deeper than they have been in decades. “Reaching a bipartisan deal to raise the debt ceiling by early September should be a relatively straightforward exercise, but the increasingly confrontational relationship between President Donald Trump and House Democrats means that the odds of another crisis are rising,” said Paul Ashworth of Capital Economics, in a note to clients seen by Business Insider.
“Earlier estimates suggested that the Treasury had enough funds on hand to keep the government running until early October, but the fear now is that it might run out of money in early September, as the deficit continues to widen. The Federal government ran a deficit of $US215bn in August last year which, if repeated this year, would leave it with almost zero cash going into September,” Ashworth said.
During the Obama administration, votes over raising the debt ceiling became fierce bipartisan battles as Republicans demanded sweeping spending cuts as a conditions for a deal.
Shortly after Trump took office, Republicans set aside their opposition to raising the borrowing limit – increasing it in March 2017 to $US19.8 trillion. It hit $US22 trillion after the debt ceiling was suspended by President Trump early in 2018, but that limit has been hit – and the government urgently needs to raise more cash.
Behind the scenes, lawmakers from both parties have been trying to negotiate a deal. On Wednesday, House Speaker Nancy Pelosi said she would like to bring a bill before the House on July 26 – the last day the chamber will meet before the recess. This would require an agreement to be reached in the next 24 hours, so legislation can be drafted over the weekend.
It would give the Senate time to vote the bill through before they break a week later.
But a White House official told MSNBC that sticking points remain.
“Pelosi’s new timeline sounds like happy talk from the Speaker who has been absent from talks for the last 3 months and now is trying to create momentum after a bad couple weeks.”
“The reality is, we have a way to go,” the official told the outlet.
Both parties remain keen to broker a deal, and are wary of being blamed by voters for a default ahead of the 2020 election. Lawmakers involved in the discussions told CNN they are close to a point where an agreement can be reached.
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