You might not have noticed amid the concurrent to-dos over health care, the laptop ban, the Gorsuch hearings, and the overall miasma of meshugas surrounding the Trump administration, but last week the federal government’s capacity to borrow beyond its current debt level of $19.8 trillion ended.
The United States has a national debt: the cumulative amount of money it owes to investors (and to future retirees). And because the feds take in less money than they spend each year, we also have an annual deficit. So every month, simply by doing its business—paying benefits and building roads, purchasing weapons systems and paying Medicare bills—the government adds to its total debt.
That means that every couple of years, Congress has to raise the official amount of debt the government can amass. It should be a routine, noncontroversial issue. So long as the debt isn’t growing too much faster than the economy, the national debt isn’t a particularly big deal. Pace the debt grandstanders and professional fiscal hawks, there is no federal debt crisis—not when the U.S. government can borrow for 30 days at a 0.76 percent annual interest rate and at 30 years for about 3 percent.
The mature and simple solution to the debt ceiling is simply to pass a law raising the debt ceiling. But in the Obama years, the Republicans in control of Congress tried to use the debt ceiling as a lever to get the president to agree to cut entitlements or slash spending, largely unsuccessfully. Everybody in Washington and Wall Street knew that, by hook or by crook, the debt ceiling had to be raised, and there would be no federal default. So after a lot of sturm and drang, the measure would ultimately pass with Democrats and some Republicans voting for it. When Washington bungled the 2011 debt ceiling increase, Standard & Poor’s downgraded America’s debt rating. There was no grand bargain to slash spending. Obama won the 2012 election. The national debt continued to grow.
Now it’s an entirely different dynamic. With one-party rule, Republicans own the legislative machinery, and hence the process. Democrats aren’t likely to try to force a federal government shutdown, but they’re not likely to make life easy for the president and House Speaker Paul Ryan by whipping votes for a debt ceiling increase. The legislative geniuses who brought you the American Health Care Act will have to figure out how to round up their party in near unanimity to vote for a clean resolution that will simply raise the debt limit without any significant offsets. “Obviously, we will raise the debt ceiling,” Senate Majority Leader Mitch McConnell said last week. And Trump will have to sign it.
There’s no great sense of urgency. For when the debt ceiling is breached, it doesn’t mean the government shuts down or even stops issuing debt. Following the playbook developed by his predecessors, Treasury Secretary Steven Mnuchin can buy time by, for example, halting the sale of securities issued to states and municipalities that let them park money to eventually be used for infrastructure products, and by (temporarily) cutting off the flow of cash into the retirement funds of government employees. It will be a few months before retirees and soldiers begin to get stiffed.
But until the debt ceiling is raised, the Trump administration is in an ironic limbo. For real estate developers, and for Trump in particular, the prospect of having an essentially unlimited ability to borrow money at cheap rates is something like a wet dream—more than living in the White House, more than flying on Air Force One. The presidency of the United States is literally the one position in America in which you can borrow a seemingly endless amount of money to fund your priorities.
Had she won the election, Hillary Clinton would have faced the exact same constraints—and it would have been much worse because Republicans in the Senate and House would have extracted a very large price in exchange for raising the debt limit. But if and when he’s informed of this, Trump is likely to feel hard done by. All the fabulous deals he wants to do—cutting taxes, building a wall, dramatically expanding the military budget, not touching major entitlements—will require the issuance of massive amounts of debt. And he can’t accomplish any of them until the debt ceiling is raised. Worse, any of the goodies will have to be preceded by an unpopular piece of legislation that will increase the national debt significantly—requiring the cooperation of the same conservative Republicans who are currently giving Trump an ulcer over health care reform.
America’s endless capacity for borrowing cheaply gave Trump the chance to be America’s Santa Claus. Thanks to the timing of the debt ceiling, he may end up being its Grinch.