Even as the partial government shutdown continues into its thirteenth day, the federal government is just a few days away from losing its ability to borrow money and is facing the prospect of defaulting on its bonds.
By Thursday, or soon thereafter, the Treasury will exhaust its legal authority to borrow more than its current $16.7 trillion borrowing limit.
Sen. Rob Portman, R-Ohio, said that by Thursday, “We will have decided as a Congress that we need to avoid going over the debt limit and we’ll figure it out and it’ll probably be a relatively short-term solution.” He said, “I’m hopeful we’ll do that actually in the next couple of days.”
But Portman said Republicans want to keep in place the spending limits, known as the sequester, which Congress imposed and President Barack Obama agreed to in 2011 as a way out of a debt limit standoff that year.
“What I understand from last night’s discussion is that Democrats are now saying they want to bust those (spending) caps,” Portman said.
On ABC’s This week, Sen. Lindsey Graham, R- S.C., agreed with Portman that the spending limits agreed to in 2011 must remain in place if Republicans will go along with any deal.
“If you break the spending caps you're not get any Republicans in the Senate,” Graham said.
The South Carolina Republican said he is worried “about a deal coming out of the Senate that a majority of Republicans can't vote for in the House. That really does compromise Speaker Boehner's leadership. And after all this mess is over, do we really want to compromise John Boehner as leader of the House? I don't think so.”
He said “I'm not going to vote for any plan that I don't think can get a majority of Republicans in the House….”
Graham, who is up for re-election next year, also admitted that the spending and debt deadlock had diverted voters’ attention from what most observers agree has been a badly botched debut of the signup for coverage under the Affordable Care Act.
“What breaks my heart is for the last 12 days, you have had a complete meltdown of the portal called Obamacare; the whole system is just not working. And we're overshadowing how badly Obamacare has been rolled out,” he said.
For Republicans, the sooner the spending and debt impasse is over, “the better for us,” Graham said, predicting that “the shutdown will be old news next year; Obamacare’s faults will be front and center in 2014 if we don't screw this up.”
As he spoke, observers from Washington to Beijing awaited the outcome of the Reid-McConnell talks. The two Senate leaders, who have known each other for more than 25 years, are working to devise a deal to end the spending impasse after Boehner failed to make progress in his bargaining with Obama.
“The House Republicans and their leadership really have stepped to the sidelines. They’re not part of this (bargaining) at this point; they can’t agree among themselves what they want to have done in this negotiation,” Durbin said.
By Thursday, the Treasury will have only about $30 billion in cash on hand, plus each day’s tax receipts with which to pay its obligations. That would mean that bond holders and 57 million Social Security recipients, among others, might not get their payments on time.
The Congressional Budget Office projects that the Treasury will use up its cash balance by the end of October.
A failure to pay bondholders on time would be a default and would cause jitters or far worse in the world’s financial markets.
Assessing the impact on the world economy of a default on U.S. Treasury securities, International Monetary Fund Managing Director Christine Lagarde said on Meet the Press that “if there is that degree of disruption, that lack of certainty, that lack of trust in the U.S. signature, it would mean massive disruption the world over. And we would be at risk of tipping, yet again, into recession.”
At an East Asian summit meeting in Brunei last week, Chinese Premier Li Keqiang told Secretary of State John Kerry that the Chinese government -- the biggest foreign holder of U.S. Treasury bonds -- was closely watching the debt ceiling issue.
Obama has said he is willing to discuss fiscal policy changes, but only after congressional Republicans agree to pass a spending bill to allow the government to resume full operations and also pass an increase in the government’s debt limit