How do you know when the country is really in trouble?
When you’re rooting for Goldman Sachs alumni to have more influence in the White House.
A debt-ceiling showdown is fast approaching, and the health of the global financial system is at stake. U.S. Treasury bonds are seen as the safest of safe assets; even the smallest insinuation that we might not make good on these IOUs could set off a chain reaction of panic and chaos throughout the world.
This is precisely why the debt ceiling so often gets taken hostage, of course. Every year or two, Congress has to raise the federal debt limit so the government can continue paying the bills it has already incurred. And every year or two, wily, attention-seeking politicians see this as an opportunity to make demands in exchange for their votes.
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The hostage-taker is sometimes the minority party and sometimes rogue members of the majority party desperate to raise their profiles (looking at you, Ted Cruz). Sometimes those voting against a debt-limit increase are merely grandstanding, knowing full well that they can free-ride on the more responsible members who will vote for it.
As stressful and costly as these debt-limit showdowns have been, to date there have always been grown-ups around — a hero or two to rally the necessary votes and rescue the world from the brink of disaster.
This time, though, there are a lot of aspiring hostage-takers and precious few heroes.
Technically, we already hit the limit in mid-March, when the Treasury Department began using “extraordinary” accounting measures to allow the government to keep paying its bills a while longer. This tactic had been expected to work until October or November, when the limit would again need to be raised.
In the past few days, however, Trump administration officials have said that tax revenue has been coming in much lower than expected. This is possibly President Trump’s own fault; high earners and companies may be deferring income until next year in anticipation of a big fat tax cut, as they’ve done before.
Whatever the cause, the result is that we’re going to run out of money sooner than anticipated – possibly as soon as late summer or early fall, given recent comments from the White House.
Already members of the far-right House Freedom Caucus have declared their intention to hold the debt-ceiling bill hostage unless their demands are met.
They “demand that any increase of the debt ceiling be paired with policy that addresses Washington’s unsustainable spending by cutting where necessary, capping where able, and working to balance in the near future,” the caucus said in a statement.
Democrats have said they would support a “clean” debt-ceiling increase, meaning they would vote for a bill that did nothing but raise the limit. When push comes to shove, though, it’s not clear they have strong incentives to save the Republican majority from its own infighting; some Democrats might believe it’s in their interest to let Republicans create a crisis.
Meanwhile, the White House, too, has given mixed signals on what it wants to do.
During the campaign, Trump was shockingly open to a federal debt default. After all, this “King of Debt” has long viewed his own bills as an opening bid that he can negotiate downward. He argued that he could do the same for the country’s debt and persuade creditors to accept less than what they’re legally owed.
“I would borrow knowing that if the economy crashed you could make a deal,” he told CNBC last year.
White House budget director Mick Mulvaney – a House Freedom Caucus alumnus, as it happens – has also been distressingly cavalier about safeguarding the country’s creditworthiness. As a congressman, he voted against raising the debt ceiling four times and publicly questioned whether it would be so terrible if we stopped being able to pay all our bills.
Other administration officials, thankfully, have taken a different approach.
Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn both once worked for Wall Street financial behemoth Goldman Sachs and therefore well understand what’s at stake and how perilous even a flirtation with default might be. This past week Mnuchin testified that he, like the Democrats, wants a “clean” debt-ceiling bill, which he urged Congress to pass before its August recess.
Who will ultimately have the president’s ear, in the weeks or days leading up to the exhaustion of those “extraordinary” accounting measures, remains to be seen. For the sake of the global financial system, let’s hope it’s a bunch of hopelessly out-of-touch 1-percenters.
Catherine Rampell is a columnist for The Washington Post.