Nov. 10 — Sometime after the middle of 2017, President-elect Donald Trump will face the same problem that bedeviled President Barack Obama through much of his presidency—the need to suspend or raise the debt ceiling or face an unprecedented default on U.S. financial obligations.
But unlike Obama for most of his administration, Trump will face a Congress of his own party. That could make it easier and avoid the “will they, won’t they” congressional dramas that previously emerged from the need to act on the debt limit. But there’s no guarantee of that and it will not be the only Treasury debt management issue a Trump administration will face.
The Treasury debt that counts under the congressionally set limit stood at $19.578 trillion Nov. 9. Trump, on the campaign trail, said the debt was close to $20 trillion and had effectively doubled under Obama, who had made a similar charge against George W. Bush in Obama’s first campaign.
Maya MacGuineas, the president of the anti-deficit Committee for a Responsible Federal Budget, said Republicans won’t be able to avoid doing something when it comes time to act on the debt limit.
“They’ll own it,” she said, referring to the debt. “I think they will put in something to address the problem in part.” That could be something like another commission or overhauling the budget process, she said.
In 2010, when Democrats raised the debt limit and held Congress, Obama agreed to sign a statutory pay-as-you-go law and set up what would become the Bowles-Simpson deficit commission.
Others are less sure the debt ceiling will have the same leverage.
“Fiscal austerity was not even on the ballot this time, but would have lost if it was,” said Lou Crandall, chief economist with analytical firm Wrightson ICAP.
Crandall said Trump is not an establishment Republican who’s shown much concern over the deficit and his supporters would more likely be OK with the new debt if it went to pay for things like highways.
MacGuineas, whose group projected Trump’s policy proposals would add several trillions of dollars to the projected U.S. debt under current law when compared to his opponent’s policies, said Trump had shown some willingness to roll back his positions in the past and she hoped his expensive campaign promises would be essentially “starting positions,” she said.
Technically, the debt limit is currently only suspended, not raised, and will remain that way until March 15, 2017 (Pub. L. No. 114-74). The next day, it will automatically reset to include all of the debt issued while it was suspended. That will likely trigger the Treasury Department’s “extraordinary measures,” accounting moves it can use temporarily to keep under the limit.
Exactly how long those will last is unclear, though analysts agree it should be at least a few months, aided by the April 15 individual income tax payment deadline.
Treasury debt managers at their quarterly press conference Nov. 2 said it was too early to give an estimate. Steve Bell, senior fellow with the Bipartisan Policy Center, said the extra time could last until August. Crandall, a veteran debt watcher, said the exhaustion date could be around the end of September 2017, give or take a month.
Treasury running out of room in August would mean lawmakers and the White House would have to agree on something by the start of August, before lawmakers begin their month-long annual summer recess. A September date could get linked up with the Sept. 30 end of the fiscal year, which is often a deadline lawmakers scramble to meet to keep federal agencies operating.
Aside from the debt limit, Trump and his advisers have had little concrete to say about debt management. One idea, though, is that the Treasury should take advantage of low long-term interest rates by issuing long-term debt that would lock in those rates.
“We have the lowest interest rates in 50 years. The federal government should start issuing 75-, 100-year bonds and lock in these rates,” Stephen Moore, a Trump campaign adviser, said Oct. 13 at the National Press Club. The longest-dated security the Treasury now sells is the 30-year bond.
Treasury debt managers have long said they avoid trying to “time” the market—that is, shift the maturities of the debt they sell toward the part of the yield curve where it would be cheapest. By making issuance regular and predictable, borrowing costs are lower over the long run, they have said. But Bell said he saw no obvious problems with taking a different tack.
“If Apple can do 40- or 50-year bonds, I guess we can,” he said.
Crandall said the attractiveness of the idea depended on Treasury interest rates, which initially moved higher on news of Trump’s election. More upward movement ahead, in reaction to market expectations Trump’s policies will likely lead to more debt and inflation, could make the idea seem less alluring.
“They’ll be mindful of what the selloff in Treasuries means,” he said.
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