It's debt limit time (again). What past showdowns can teach us.(Read article summary)
Once again, the US Treasury is facing the possibility of going past the debt limit, which could prompt major policy changes or minor tweaks to the Federal budget. This feels like a modern phenomenon, but debt limit showdowns are nothing new.
J. Scott Applewhite/AP/File
Itâs debt limit season again. Treasury will soon exhaust all the âextraordinaryâ (if familiar) measures itâs using to stay within the limit. By mid-October, Treasury will have just $50 billion on hand. Once thatâs goneâmaybe at Halloween, maybe a bit laterâUncle Sam wonât be able to pay all his bills or will be forced into doing something desperate like breaching the debt limit or minting platinum coins (kidding, mostly).
We seen this movie before. Sometimes it ends with major policy changes, such as the 2011 deal that spawned the sequester. Other times it leads to minor tweaks, such as the January 2013 deal that linked congressional pay to passing separate budgets through the House and Senate.
"Soon after President Dwight Eisenhower took office, his administration began signaling the need for additional borrowing authority. But conservatives were not convinced. âFor the Administration, this would be the easy way out of hard decisions,â warned the Wall Street Journal. â[T]o lift the debt ceiling for this âemergencyâ need will make the whole idea of a debt ceiling meaningless. To impose a limit on the governmentâs debt and then to change it the moment it begins to squeeze makes of the whole thing a trick for fooling people.â
In fact, the Journal suggested that a debt ceiling crisis might be useful. âThe government would not be able to carry out all of its spending plans,â the editors predicted. âSome things would have to be cut back a little further. Up against the hard ceiling, government officials would be compelled to make hard decisions, to choose between this dollar and that one.â Staying under the existing cap would be difficult, but that was the point. âUnder such a compulsion,â the paper suggested, âmany needed economies would be made that would otherwise be thought impossible.â
Eisenhower didnât believe that spending cuts would be sufficient to keep federal debt under the cap. âDespite our joint vigorous efforts to reduce expenditures,â he told Congress, âit is inevitable that the public debt will undergo some further increase.â On July 30, Eisenhower asked Congress for an increase in the debt ceiling from $275 billion to $290 billion.
Treasury Secretary George M. Humphrey stressed the urgency of the situation. âWe will just run out of money and we canât pay our bills,â he told lawmakers. âItâs just that simple.â Failing to raise the borrowing limit, he warned ominously, might produce âa near panic.â
The House of Representatives swallowed hard and approved Eisenhowerâs request. But the Senate had other ideas."
History, as they say, sometimes repeats. Swap the House and Senate and boost the dollar amounts and youâve gotÂ rhetoricÂ that could almost be plucked from today.
Read Joeâs piece to find out how it all turned out. One tidbit (which I donât think we should repeat): Treasury was forced to sell gold bullion to cover $500 million in debt.Â