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The U.S. Treasury Could Run Out of Cash in September

Posted by Metals Corporate on

The U.S. Treasury Could Run Out of Cash in September
By John McDonald

The U.S. Treasury could run short on cash before Congress reconvenes in September if the legislature fails to raise the debt ceiling before Congress leaves for the end-of-summer recess. 

Treasury Secretary Steven Mnuchin wrote a letter to House Speaker Nancy Pelosi mid-July, warning, “Based on updated projections, there is a scenario in which we run out of cash in early September, before Congress reconvenes.”

Mnuchin is hoping his letter will spark a spirit of cooperation between the left and right sides of the aisle so that the White House does not have to offer a one-year continuing resolution and debt ceiling increase as a potential solution. 

If that is rejected and no other compromise is reached, the government could, again, shut down as it did in late 2018 and early 2019.

Unlike during the previous shutdown, this time the White House and Congress appear to be in accord that a government shutdown is undesirable. 

Mnuchin observed after a recent meeting with White House officials and congressional leaders, “If Congress fails to increase the borrowing limit, the U.S. could risk default on its debt, which would have ripple effects throughout the global economy.”

Why Is the Debt Limit Such a Problem?

Whether you believe the debt limit is a fabrication designed to limit government power and spending or a highly volatile and dangerous construct that could destroy the free world entirely, it is probably confusing at this point to understand what all the fuss is really about. 

Why can’t Congress just raise the debt ceiling, or, if it’s better for the country, refuse to do so and force a reckoning? Why is there always so much grandstanding when this topic arises?

The answers to these questions are certainly multifaceted, but much of the issue boils down to deeply ingrained, passionate views on both sides of the aisle about how money should be spent (or not spent). 

For example, conflicts frequently arise over how much, if any, money should be secured for defense spending at any given time. 

The opportunity to publicly stand up for refusing to raise the debt ceiling unless a certain requirement is met by the federal budget is a nearly irresistible opportunity for many senators and representatives.

The Debt Ceiling Might Be Too Outdated to Work

Many politicians and analysts say the debt ceiling is an archaic construct the federal government no longer needs. President Trump observed in mid-2017, “For many years, people have been talking about getting rid of the debt ceiling altogether.” 

He continued, “There are lots of good reasons to do that.”

However, there are also arguably a number of good reasons to keep it in place. Advocates for the debt ceiling point out that it forces American citizens to periodically evaluate how their representatives are allocating federal funds. 

Furthermore, at this point, removing the debt ceiling could have some of the same results that breaching it would: impairing the safe-haven stature of Treasury bonds, raising interest rates, and possibly interfering with various federal program payouts.

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