As Heritage expert J.D. Foster, Ph.D. noted in his January 2011 paper “Congress Has Time and Options on Debt Limit“, Congress had time to discuss how it wants to proceed on the debt limit. Secretary of the Treasury Timothy Geithner’s letter of April 4, 2011 estimates that the Federal Government will not reach the statutory debt limit before May 16, 2011 and that the Treasury can use special measures to extend that date to about July 8, 2011. Thus, it remains clear that Congress has sufficient time to proceed carefully and deliberately in deciding how to best take advantage of the debt limit situation to help bring Federal spending and borrowing under control.
While Secretary Geithner’s letter makes clear that Congress has more time, the letter also raised once again the bogeyman of a default on the Federal debt. As Dr. Foster’s paper demonstrated, there will not be a default on the Federal debt when the Treasury reaches the statutory limit on its borrowing of $14.294 trillion. The Treasury just will not be able to borrow any more money. The Treasury would still pay debts that come due, putting off temporarily payment of less important obligations as necessary to pay the maturing debt. Of course, the hope is that conservatives in Congress will be able to persuade a majority of the Senate and President Obama to enact a law that takes strong steps to curb spending and borrowing and starts to get the debt under control, but there is no guarantee that the Senate majority and the President will not force a debt limit crisis instead.
If the Obama Administration is serious about getting spending under control and about maintaining orderly financial markets, Secretary Geithner needs to help guide his colleagues at the Office of the Management and Budget and in the White House toward near-term substantial reductions in Federal spending, including for entitlement programs, and long-term solutions to ensure that the Federal Government never spends itself again so deeply into debt that it cannot effectively manage its way out.