WP Daily 202 7/22/21 in News stories

By Olivier Knox
with Mariana Alfaro

Welcome to The Daily 202 newsletter! Tell your friends to sign up here. On this day in 1934, the original “Public Enemy No. 1,” bank robber John Dillinger, was shot dead by federal agents outside the Biograph Theater in Chicago.

Ah, summer in Washington, D.C., when a short downtown stroll makes you wish you lived somewhere less hot and humid — maybe a dog’s mouth? — and Congress is preparing for yet another fight over how much the country can borrow.

Yes, lawmakers are about to do battle over America’s debt ceiling, the legal limit on how much the U.S. government can get from creditors to pay for projects and programs already approved by Congress — including “yes” votes from many of the same lawmakers now calling for national belt-tightening.

This particular confrontation was arranged in April, when Republicans — who regularly signed off on raising the ceiling as the national debt swelled about $8 trillion under President Donald Trump — signaled an intent to return to using the standoff to extract spending cuts.

Republicans have already started targeting President Biden’s ambitious (and expensive) effort to transform the role of government in America with major investments in infrastructure and a serious expansion of the social safety net.

Democrats don’t need Republican votes to raise the debt limit.
They could do so with their simple majority via the tactic known as reconciliation. But the GOP would be sure to try to exact a political price for the red ink in the 2022 midterms.

The debt ceiling in its modern form emerged in 1939, but originated in 1917 both as a way to curtail national borrowing and enable the executive branch to engage creditors without needing approval from Congress each and every time.

My colleagues Tony Romm, Seung Min Kim and Mike DeBonis reported yesterday
“The renewed Republican threats arrived only 10 days before a current agreement that suspends the debt ceiling is set to expire. If Congress cannot reach a deal to raise or suspend the ceiling by month’s end, the government would have to rely on what are known as ‘extraordinary measures’ to keep paying its bills. Such tactics could give lawmakers breathing room until October or November, according to a new analysis from the Congressional Budget Office, at which point the country would be at risk of default if it did not act

he drama intensified earlier Wednesday, after Senate Minority Leader Mitch McConnell (R-Ky.) told Punchbowl News that his party is unlikely to vote for an increase. Instead, he said Democrats should tackle it alone as part of a roughly $3.5 trillion budget deal that they plan to pass through a process known as reconciliation. The move would allow Democrats to advance spending priorities using 51 votes, rather than the normal 60, provided the entire party sticks together.”

My colleagues also delivered a very clear primer on national finances:

“The U.S. government spends much more money than it brings in through tax revenue, and that annual gap is known as the deficit. In 2021, the government is expected to spend $5.8 trillion and bring in $3.5 trillion in revenue, leaving a deficit of $2.3 trillion, according to CBO.

To finance the gap between spending and revenue, the Treasury Department borrows money by issuing debt. But the government can issue debt only up to the limit set by Congress, which is why the debt ceiling must be raised or suspended periodically. The government currently has more than $28 trillion in debt subject to the limit, and it is expected to pay $300 billion in interest on this debt in 2021, according to CBO.”

One feature of this regular political skirmish is the faction that, tired of the brinkmanship, calls on Congress to get rid of the debt ceiling altogether using a variety of means.
The White House yesterday declined to endorse that. Press secretary Jen Psaki told reporters “we are fully expecting Congress will raise the debt ceiling as they have numerous times over the last couple of years.”

It’s not clear precisely what would happen if somehow the limit were not raised, but The Washington Post had a nice explainer during the government shutdown over the debt ceiling in 2013.

After noting one early result would be missed payments — Social Security checks, money for contractors, etc. — Brad Plumer explained how things could get worse.

“A defense contractor might accept an IOU. A retiree who sees his Social Security check delayed might be less pleased. But the financial markets could be really unforgiving.

Many economists think it would be disastrous if the government ever missed an interest payment on the debt, like the ones due on Oct. 31 and Nov. 15. The global financial markets are structured around the notion that U.S. Treasuries are the safest asset in the world. If that assumption were ever called into question, havoc could ensue.

It ‘would be like the financial market equivalent of that Hieronymus Bosch painting of hell,’ [according to] Michael Feroli, chief economist at JP Morgan.”