The Obama Administration’s Ever-Evolving Drop-Dead Date For Raising The Debt Cap

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Written By:
Rob Port

May 3, 2011
3:01pm

The Obama administration has been busy raising the alarms about the national debt cap, saying that if we don’t raise it America will be hurled into a fiscal apocalypse by defaulting on its debt.

Or words to that effect.

But what’s interesting is how the Obama administration’s “line in the sand” for the drop dead date by which Congress must act keeps evolving. In January of last year, Secretary of State Tim Geithner wrote Congress saying that they had to act by the end of the first quarter of this year or the country would default on its national debt. In other words, it was March 31st or else.

…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.

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.

Obviously, that date has come and gone, and yet we’ve not seen the “catastrophic damage to the economy” predicted by Geithner.

On April 4th Geithner sent another letter to Congress, this time saying that the drop-dead date for raising the national debt cap was now May 16th…or maybe July 8th:

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.

So from March 31st to July 8th, Geithner has already postponed the due date for a debt cap increase by roughly three months. But yesterday, in yet another letter to Congress, Geithner pushed that date back even further to August:

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?” asks Lou Dolinar:

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?

Well, we should remember that Geithner is a man who was befuddled by the complexities of Turbo Tax.

But all joking aside, this constant moving-the-goalposts makes it hard to take the Obama administrations claims of dire consequences on the debt cap seriously. They want to raise it for political reasons, to clear the way for more spending on their policies, and they seem to be not above cooking the books a bit to help make their case.