The U.S. government will exhaust the extraordinary measures it has taken to avoid a debt-ceiling breach “on or about Thursday, November 5,” according to a letter sent by Treasury Secretary Jack Lew to Congressional leaders.
The news sets the stage for another potentially costly battle over whether or not to raise the statutory limit on the amount of debt that can be legally borrowed by the Treasury Department. Congress and the President have tussled over the debt ceiling ever since the Republican Party took over the House of Representatives in 2010, and argued against raising the debt ceiling unless the President also agrees to commensurate spending cuts. The President (and most objective economists) take the view that the act of raising the debt ceiling is merely Congress agreeing to issue debt to pay for things that it has already decided to fund, and that using the debt ceiling as a negotiating tool is a reckless mistake.
According to Chris Krueger, an analyst with Guggenheim Securities, the timing of the government’s collision with its debt ceiling could be good news, given Speaker Boehner’s recent announcement that he plans to step down on Oct. 31. In a note to clients Friday morning Krueger wrote: “This is bullish for the John Boehner Lame Duck goodwill tour that could see Boehner’s final act as Speaker on October 31 involving raising the debt ceiling (with a host of Democratic votes) and preventing the new GOP leadership from driving the country off a fiscal cliff.”
In other words, the deadline is close enough to the Speaker’s departure that Boehner could arrange to raise the debt ceiling on the back of Democratic votes, spurning the hard-right members of his caucus who want to see a confrontation with the President over spending. Many Republicans don’t want to see this happen because breaching the debt ceiling would likely cause the U.S. government to default, triggering a host of consequences up to and including a possible global financial panic.