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Debt Limit Drop-Dead Date: July 8

Everyone has April 8 on their calendars as the day when the government will go into shutdown. Flip ahead three months, and you can place July 8 there as well:

Treasury Secretary Timothy F. Geithner said that even if he uses “extraordinary measures” to prevent the United States from defaulting on its obligations, lawmakers will need to raise the legal limit on government borrowing by July 8.

Current projections show the United States will reach its $14.3 trillion cap on borrowing “no later than May 16,” Geithner wrote in a letter Monday to leaders on Capitol Hill. He said that he would “use all measures available to me” to delay additional borrowing above that cap.

But with the national debt rising on average by $125 billion a month, those financial maneuvers would buy less than eight weeks for Congress to act.

“Default by the United States is unthinkable,” Geithner wrote. “This is not a new or partisan judgment; it is a conclusion that has been shared by every Secretary of the Treasury, regardless of political party, in the modern era.”

Really, it should never get beyond May 16. The extraordinary events Geithner would have to undertake to keep the country under the debt limit would include suspending security sales and stopping payments into pension funds for federal employees. It would be a painful circumstance that would eventually cost a lot of money and cause undue suffering. There’s nothing responsible about causing a debt default.

As we’ve discussed, there are actually three hostage-taking events. You see one playing out right now with the imminent April 8 government shutdown. With Paul Ryan introducing an extreme budget that ends Medicare, you can see that triggering a standoff later in the fall. And then there’s the debt limit. Republicans will probably not sign on to an increase without some other assurance on cuts to the budget. Some members of Congress have said this should be the last increase ever in the debt limit. So that hostage-taking event sits in the middle in between April 8 and the fall, coming right around mid-summer.

Democratic deficit scolds flirted last year with teaming an increase in the debt limit to some condition on long-term deficit reduction, but it resulted in the cat food commission, which did not come to an agreement that satisfied the requirement to force a vote in Congress. Now, I’d expect some to hold out for another bite at the apple, perhaps a definitive vote on the Simpson-Bowles report in exchange for a debt limit increase.

A default by the United States could trigger a mass financial panic. There’s no other way to put it.

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David Dayen

David Dayen