Policy: Economy

Banning 'extraordinary measures' could reduce default risk

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Executive Branch,Treasury,Debt Ceiling,PennAve,Joseph Lawler,Economy,Jack Lew,Government Shutdown

Republicans are trying to restrict the Treasury's ability to maneuver under the debt ceiling with a provision that could, counterintuitively, have the effect of reducing the possibility of a default in the future.

House Republicans are considering legislation to raise the debt ceiling and fund the government that includes language banning the Treasury from using "extraordinary measures" to create headroom under the debt ceiling in the future.

Treasury Secretary Jack Lew has been using such measures, which include issuing IOUs to government employee retirement funds and shifting around government accounts, since the debt reached the statutory limit of $16.7 trillion in May.

Lew has said that he will run out of the measures on Thursday, at which point he will be left with only cash and incoming revenues with which to pay the country's bills.

His projection has been wrongly interpreted by many in the government and media as a hard deadline for avoiding a default on Treasury obligations. The Treasury likely has enough funds on hand to meet all its bills through Oct. 22 at the earliest or Nov. 1 at the latest, according to Bipartisan Policy Center's projections.

Confusion over when exactly the government faces default is hurting the Obama administration's credibility, former Obama economic adviser Austan Goolsbee said last week. Goolsbee called it a "fuzziness problem": The public doesn't understand the timing of the default threat, even if they believe it's a real threat.

Removing the use of extraordinary measures might clear up that fuzziness.

With the now-routine use of extraordinary measures, "we've morphed into this world where the cushion gets used a lot," said Urban Institute expert Donald Marron, a phenomenon that "undermines their usefulness."

In a blog post last week, Marron wrote that the Treasury's employment of extraordinary measures has become "embarrassingly casual." That post was cited in Republican leadership's talking points on forbidding extraordinary measures.

"This whole area needs a rethink," said Marron, although he told the Washington Examiner his preference would be to eliminate the statutory cap on debt altogether.

Removing the ability of Treasury to maneuver under the debt ceiling for months at a time could mean that whatever day the Treasury hits the debt limit is a hard deadline. That, in turn, could decrease Congress' willingness to push negotiations to the last minute.

Nevertheless, President Obama and Lew have objected to the GOP measure. Treasury officials under both Democratic and Republican presidents have used the maneuvers, and ending them would represent a transfer of power away from the executive branch.

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