Congress Will Raise Federal Debt Ceiling – Count On It

Congress Will Raise Federal Debt Ceiling – Count On It
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by Gary D. Halbert
April 11, 2017

Government Shutdown Looming? Not Anytime Soon

1. March Jobs Report Was Much Weaker Than Expected

Gates Capital Returns 32.7% Tries To Do “Fewer Things Better”

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2. Media Warns of Government Shutdown at End of April

3. Understanding How “Extraordinary Measures” Work

4. Congress Will Raise Federal Debt Ceiling – Count On It

5. Why the Upcoming Spending Battle Will Get Very Ugly


Over the next couple of weeks, the mainstream media is likely to deluge us with warnings that the government could shut down at the end of this month. According to the Treasury Department, that’s just not true. Whether you are a conservative or a liberal, you should know the facts surrounding this issue.

The media will try to convince the public that hardline conservative Republicans actually want to see a government shutdown so that they can use it to negotiate political victories on controversial issues such as comprehensive tax reform, healthcare reform, budget cuts, infrastructure spending and others.

The truth is that even though the government reinstated the so-called “debt ceiling” in March, and the current spending resolution expires on April 28, the government will be able to continue to operate pretty much as usual until sometime this fall. It’s complicated, but I’ll explain it all as we go along today.

Before we get into that discussion, let’s take a brief look at last Friday’s very disappointing unemployment report for March. It was the worst jobs report in over a year.

March Jobs Report Was Much Weaker Than Expected

Employment growth unexpectedly slowed in March, hurt in part by job losses in the retail industry. Nonfarm payrolls grew by just 98,000 in March, according to last Friday’s Labor Department jobs report. Payrolls had been expected to increase by 180,000 in March, according to the pre-report consensus.

The good news, if you can call it that, is the headline unemployment rate fell slightly to 4.5%, in March, down from 4.7% in February. Some blamed the weak jobs report on winter storms last month, but that does not nearly explain why new job creation was the weakest in almost a year and about half of what was expected.

The Labor Department also revised down its estimates for job creation in January and February, with the combined total falling by 38,000. Average hourly earnings rose at an annual pace of 2.7% in March, following a 2.8% increase in February.

The retail sector suffered the most in March, with almost 30,000 jobs cut. Big box department stores are expected to close at least 3,500 stores this year alone. Department stores like JCPenney, Macy’s, Sears and Kmart are among the companies shutting down stores, along with mall chains like Crocs, BCBG, Abercrombie & Fitch, Guess and Bebe.

It remains to be seen if the much weaker than expected March jobs report was an aberration or a sign of things to come.

Media Warns of Government Shutdown at End of April

To understand the ensuing discussions over the debt limit/ceiling and the possibility of a government shutdown this year, we need to look at two separate issues. Back in November of last year, Congress passed a measure that effectively suspended the debt ceiling until March 15 of this year.

As such, there has been no limit on government spending since late last year. Yet as of March 16, the old debt ceiling just under $20 trillion went back into effect, and the national debt is already at that level.

So since then, the Treasury Department has been funding the government using so-called “extraordinary measures” that don’t officially add to the national debt – at least not yet. The Treasury says it can continue to pay the government’s bills in this manner until sometime this fall. So it’s likely to be business as usual until sometime in late October, unless the Republicans somehow get serious about drafting a new federal budget before then.

The second issue to understand is that the current temporary spending bill – a so-called “continuing resolution” – expires on April 28. Some in the media are already warning that a government shutdown could begin as early as April 29. They ignore or fail to realize that the Treasury can meet all government obligations until sometime in the fall.

For example, a CNN article on March 29 was entitled:

Will Congress Celebrate Trump’s 100th Day in Office
With a Government Shutdown?
And went on to say:

Saturday, April 29, will mark President Trump’s 100th day in office. But will it also mark Day 1 of a government shutdown?

It will if Congress doesn’t pass a spending bill soon that authorizes funding for the federal government — and if the president doesn’t sign it.

The current temporary spending bill — a so-called continuing resolution — expires on April 28. But there are still five months remaining for this fiscal year that need funding.

It certainly won’t look good if the government shuts down on Republicans’ watch, since they control both Congress and the White House — especially given questions about their ability to govern in the wake of the party’s recent failure to accomplish its No. 1 goal: Obamacare repeal.

The CNN article noted above, and several others I have seen since, make no mention of the fact that the Treasury can continue to fund the government using those ‘extraordinary measures’ that don’t add to the national debt until October or so.

For whatever reasons, they apparently want Americans to believe that the government will shut down on April 29, the day after the current congressional spending resolution expires.

Understanding How “Extraordinary Measures” Work

Once the government hits the debt ceiling, the Treasury can use a variety of bookkeeping maneuvers to continue to finance government operations, including making interest payments on the national debt. However, as noted above, the Congressional Budget Office estimated in a report back in March that those measures will be exhausted by sometime in the fall.

At the point that the Treasury can make no other bookkeeping moves, Congress will have to enact an increase in the borrowing limit to avoid the first-ever default on the government’s obligations, an event that would send shock waves through global financial markets. While Congress has often delayed action until the last minute, it has always approved an increase in the debt limit rather than run the risk of a default.


It is not uncommon for Congress to use the debt ceiling as a bargaining chip with the sitting administration. But in this case, Republicans control the White House and Congress, so why should there be a problem?

For the same reason the Republicans couldn’t pass ObamaCare Repeal & Replace. Some of the conservative Republicans may challenge President Trump on the debt ceiling like they did with the ObamaCare bill, which failed to win approval despite Republican majorities.

Congress Will Raise Federal Debt Ceiling – Count On It

In early March, Treasury Secretary Steve Mnuchin sent a letter to Congress urging lawmakers to increase the debt ceiling as soon as possible.  In that same letter, Mnuchin confirmed that ‘extraordinary measures’ will have to be taken to avoid a government default.

He failed to mention, however, that those measures could fund the government beyond the end of fiscal year 2017, which ends on September 30.

In one debt ceiling standoff in August 2011, the Standard & Poor’s rating agency issued a first-ever downgrade of a portion of America’s debt, citing the 11th-hour maneuvering that was needed to raise the limit that year to avoid a default.

Speaking on the Sunday talk shows on April 2, Senate Majority Leader Mitch McConnell said he was “very confident” Congress will avoid a government shutdown when the current government spending law expires in late April. Of course he did! He knows the government is not going to shut down at the end of April.

Asked by Chris Wallace on Fox News Sunday if he would be prepared to risk a government shutdown over GOP agenda items like President Trump’s proposed border wall or defunding Planned Parenthood, McConnell simply said, “We’re going to negotiate all of those items in the context of this funding bill.”

What he failed to mention is that those negotiations could drag on until this fall when the Treasury’s extraordinary measures are likely to be exhausted.

The point is, and always has been, that the US government will not default on its debt – regardless of who sits in the White House or which party controls Congress.  And the drop dead date, or “X-Date” is not April 29. It’s sometime in the fall.

Why the Upcoming Spending Battle Will Get Very Ugly

While I fully believe the debt ceiling and spending battles will be resolved before the Treasury runs out of bookkeeping gimmicks in the fall, the upcoming feuds are certain to get very heated. Here are just some of the sticking points.

Trump’s Border Wall Funding: If Republicans try to authorize funding for Trump’s controversial border wall, that will be a no-go for Democrats. “That will not stand,” Senate Minority Leader Charles Schumer has vowed. There are growing hints that top Republicans won’t push to include money for the wall in the government funding bill, but may choose to under a separate vehicle.

Defense Spending Hike & Domestic Program Cuts: President Trump is requesting at least a $30 billion increase for Defense and Homeland Security. To offset that, he’s proposing $18 billion in cuts to non-defense programs, which make up the smallest part of the federal budget.

That’s also not going to work for Democrats, who want parity in spending levels for both defense and non-defense. On the other hand, not increasing defense spending could become a major sticking point for Republican defense hawks.

Planned Parenthood: Republicans were planning to strip funding for the healthcare services organization in their Obamacare repeal bill. Since that bill is dead for now, conservatives may push for a Planned Parenthood defunding measure in the new spending bill. If they do, it’s bye-bye to Democratic votes.

House Speaker Paul Ryan signaled recently that defunding Planned Parenthood will not be in the House spending bill. If so, this could mean a lot of Republican defections on the bill.  It also raises the question of whether President Trump will sign it. With Republicans divided, the Democrats have more leverage to keep Planned Parenthood funding in the bill.

These are just a sampling of the numerous hot-button issues that will have to be hammered-out in the spending battle over the next several months. It will be very ugly, even though the Republicans control the White House and Congress. It remains to be seen if President Trump can hold the Republicans in line. I wouldn’t bet on it!

Just keep in mind that April 29 is not the drop-dead date for a government shutdown, even if the media says it is.

In closing, I must leave you with one caveat. If Congress somehow passes a new federal budget, or a new continuing spending resolution by April 28, then the issue of a government shutdown simply goes away temporarily. Yet I am very doubtful that Congress will pass a new spending bill by April 28, especially since lawmakers are currently away on a two-week vacation. In any event, you’ll know the real story.

Happy Easter Everyone!

Let me take this opportunity to wish everyone a happy and special Easter this Sunday. Easter is a special holiday for me, not only because of the religious aspects for Christians in particular, but also because Debi and I were married on Easter weekend 31 years ago. Ever since then we have celebrated our anniversary on Easter weekend, even though Easter falls on a different calendar date each year.

This year we are also anxiously preparing for the wedding of our oldest child, Tyler, who will get married on the first weekend of May. The rehearsal dinner will be held at our home overlooking beautiful Lake Travis on Friday night, with the ceremony the next day at a wedding venue which also overlooks the lake. The Bride and Groom plan to depart by boat. It should be fun!

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