Which Drop-Dead Debt-Hike Deadline?

by Lou Dolinar

Yesterday, Treasury Secretary Tim Geither revised, for the third time, his deadline for when the U.S. will officially default on its debt. Has he been moving the goalposts?

Let’s go to the original documentation. Back in January, Secretary Geither wrote to Congress and said that the U.S. would reach its debt limit by the end of the first quarter, i.e. March 31, and that Congress needed to act by then. My boldface:

However, the Treasury Department now estimates that the debt limit will be reached as early as March 31, 2011, and most likely sometime between that date and May 16, 2011. This estimate is subject to change depending on the performance of the economy, government receipts, and other factors. This means it is necessary for Congress to act by the end of the first quarter of 2011.

He adds ominously:

However, if Congress were to fail to act, the specific consequences would be as follows: The Treasury would be forced to default on legal obligations of the United States, causing catastrophic damage to the economy, potentially much more harmful than the effects of the financial crisis of 2008 and 2009.

Darn Republicans. There’s more, but I think you can catch his drift.

Here we are, more than a month after the end of the first quarter, and the sky has not fallen. But that’s okay, because Secretary Geithner, on April 4 — after his previous deadline had passed — set a new debt-ceiling date in another letter to Congress, revising and extending the drop-dead date:

The Treasury Department now projects that the debt limit will be reached no later than May 16, 2011…If the debt limit is not increased by May 16, the Treasury Department has authority to take certain extraordinary measures, described in detail in the appendix, to temporarily postpone the date that the United States would otherwise default on its obligations. These actions, which have been employed during previous debt limit impasses, would be exhausted after approximately eight weeks, meaning no headroom to borrow within the limit would be available after about July 8, 2011.

Geithner gives away the plot a little farther down in his letter. See, he explains, all these guys waving their arms about previous occasions when the debt limit wasn’t raised just didn’t know what they were talking about. This time is different:

If Congress does not act by May 16, I will take all measures available to me to give Congress additional time to act and to protect the creditworthiness of the country. These measures, however, only provide a limited degree of flexibility much less flexibility than when our deficits were smaller.

Note that Geither says raise the debt by July 8, not by May 16 or by the end of the first quarter, to avoid a crisis. Overall, our deadline has been postponed three months (so far).

Yesterday, in another letter to Congress, Geithner said he would be putting extraordinary measures into effect and that he’s again managed to postpone the inevitable, this time to to August 2, 2011.

Largely as a result of stronger than expected tax receipts, we now estimate that these extraordinary measures would allow the Treasury to extend borrowing authority until about August 2, 2011, approximately three weeks later than was forecast last month. This is a projection and is subject to change based on government receipts and other factors during the next three months.

What’s going on? Was he just joshing us back in January? Or is it possible that Treasury is unable to accurately estimate revenues with better than four months’ precision over seven months? That’s a pretty big margin of error, and perhaps more alarming than an outright lie. Are we really, no finger-crossing, going to default in August now?

Meanwhile, if the administration foresaw a major crisis in January, seven months before the August drop-dead date, why didn’t they been negotiating furiously with Republicans over the terrible scenario they outlined? There’s been plenty of time for such discussions, but now, as the deadline approaches, all we hear is that we need to rush through a clean bill and that it is inappropriate to tie it to deficit reduction measures. I note that the president didn’t even begin to talk seriously about deficit reduction until April 13, almost two weeks after his own Treasury secretary’s first deadline expired.