Price for Debt Limit Peace Through 2016: About $1 Trillion

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By Jonathan Nicholson
Oct. 2 — While the Treasury Department clarified how soon it would need a debt limit hike recently, it left open the question of how much of an increase it wanted. If the White House and congressional Republicans want to put the issue in the rear view mirror for 2016, however, the price will be steep: probably more than $1 trillion in new debt.

That's according to estimates from the nonpartisan Congressional Budget Office and the White House's own Office of Management and Budget. While Treasury's estimate that it will run out of borrowing room under the current $18.113 trillion debt ceiling Nov. 5 has put the issue on the legislative front burner, little attention has been paid to how much debt will be added by another debt limit hike or suspension sufficient to get through the November 2016 presidential elections.

In July, the OMB estimated the debt subject to the congressionally set debt limit would total $19.225 trillion as of Sept. 30, 2016. With October usually posting a deficit for the government as well, the actual figure to get through Election Day would likely be somewhat higher than $19.225 trillion.

The CBO, in its mid-session review issued in August, put the Sept. 30, 2016, debt amount at a slightly lower $19.043 trillion.

Compared to the where the debt stands currently, the OMB projection would result in an increase of more than $1 trillion, while in the CBO calculation the increase would be closer to $900 billion.

Treasury Estimate Somewhat Early

Since taking over Congress in 2011, Republicans have shied away from traditional increases in the debt, choosing to suspend the limit until a specific date and then allowing it to reset at a higher number to account for the debt amassed during the suspension period. But the end result has been the same: more debt. For example, the February 2014 suspension in the debt limit allowed it to again reset in March 2015. The difference between the two limits: $901 billion.

How much debt will be allowed by a new suspension or debt limit hike is not the only political problem relating to the debt limit. The relatively quick turnaround forced by the Treasury's Nov. 5 estimate is also likely to be an issue.

While many on Capitol Hill seemed focused on the later end of the Congressional Budget Office's August forecast that the debt limit may not need to be dealt with until mid-November or early December, private sector forecasters found Treasury's estimate somewhat on the early side of their estimates, but only by a week or two.
Alec Phillips, political economist with Goldman Sachs, said, “Our estimate was mid-November, so not tremendously different.”

Lou Crandall, chief economist with analysis firm Wrightson ICAP, called the Nov. 5 date “very conservative” in a research note for clients, but he noted analysts don't have access to up-to-date data on federal trust fund movements that can affect the amount of borrowing room available. Prior to Treasury's announcement, Crandall had pegged the second half of November as the “drop dead” date.

Similarly, the Bipartisan Policy Center had also projected a mid- to late-November “drop dead” date. In a statement Oct. 2, Steve Bell, the BPC's senior director of economic policy, said, “While Treasury Secretary Lew used the date of November 5 as the date of exhaustion of extraordinary measures, we would emphasize that the letter pointed out the uncertainties of the department's estimates. We would recommend paying special attention to that portion of the Secretary's letter and keeping in mind that the November 5 date may well change as more October data accumulates.”

In the letter to congressional leaders, Lew said Treasury would have less than $30 billion in cash on hand on Nov. 5, which would leave it vulnerable to being unable to pay daily bills expected in the early part and middle of the month. Goldman's Phillips cited a $33 billion interest payment due mid-month and a $6 billion Social Security outlay expected Nov. 11 as likely candidates for what Lew was referring to.

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