Can Republicans Prevent Catastrophe for US and Global Economy?

We’re going to hear a lot about the “extraordinary measures” the Treasury Department has and will continue to take in order to avoid defaulting on the nation’s $31 trillion (and counting) national debt.

Many of these maneuvers are accounting tricks that allow the Treasury to shuffle money from one government account to another (The New York Times has a good rundown on what measures have been used and what others may be used in the future).

Right now, the so-called “Date X,” when the Treasury runs out of gimmicks to pay Uncle Sam’s bills in sometime in June. But it could be sooner, thanks to rising interest rates and President Joe Biden’s expanded student debt forgiveness program:

The Bipartisan Policy Center think tank, a go-to resource for identifying that deadline, expects it will hit sooner than it initially thought thanks to the student loan freeze, which halted incoming government payments from millions of borrowers, and the Fed’s inflation-fighting rate increases, which raise Treasury’s cost of borrowing to fund federal operations.

“On both of these counts, you’re talking about tens of billions of dollars,” said the center’s director of economic policy Shai Akabas, who believes that’s enough to accelerate the X date by several weeks.

Which puts real pressure on Congress and the White House to agree on how, how much and in what form, the debt limit will be increased. The new GOP House majority pledged to seek spending cuts in exchange for ceiling increases…which is a no-go for Democrats.

That means we’re in for some heated exchanges, tough talk and overblown rhetoric in the next few weeks as the two sides dicker over terms.

But make no mistake: defaulting on the debt would be catastrophic for the U.S. and the global economy.

And on that topic…there will be a lot of talk about how the U.S. has never defaulted on its debt. That’s mostly true. Except for that time in 1979 when, technically, it did default. As Kenneth Pringle wrote in Barron’s back in 2021:

…in 1979, the Treasury stiffed a group of T-bill investors of $122 million. At least, it failed to get the money to the holders on time amid a computer backlog. Eventually all were repaid, with interest, some waiting more than 10 days for their checks to arrive.

Technically a default and, though small, that brief nonpayment would have consequences. “The delays have resulted in a flood of complaints to district Federal Reserve Banks,”  wrote Edward P. Foldessy, The Wall Street Journal‘s longtime markets reporter who broke the story on May 9, 1979. Foldessy noted that it was “especially embarrassing because U.S. Treasury securities are considered the world’s safest and most liquid investments.”

Small, technical and a major embarrassment. And yes, a default. But a rounding error compared to the $31 trillion on the line this year.

The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.

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