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Senate Republicans Begin Hostage-Taking Strategy over the Next Debt Limit

One area that has been pushed to the side as we contemplate the lame duck session and all the expiring fiscal measures is the debt limit. When last we left our story, the debt limit was extended by $2.1 trillion last August, with the expectation being that this would keep the country able to borrow through the election. We never had a full understanding of when precisely that borrowing capacity would run out, under the nonsensical system whereby the Congress has to pass a law allowing the Treasury to cover debts it already racked up.

Now, two Republicans, ranking members of the Budget and Finance Committees in the Senate, want clarity on when that debt limit will be hit, and when the Treasury would reach a fail-safe point over which they can no longer borrow.

Sens. Orrin Hatch (Utah) and Jeff Sessions (Ala.) asked Treasury Secretary Timothy Geithner on Monday to lay out a precise timeline for when the government expects to near the debt ceiling and what “extraordinary measures” can be taken to prolong the deadline […]

Citing Treasury data, they said the government’s debt load, as of Oct. 11, stood $275 billion below the new level, which was expanded by $2.1 trillion under the last-minute debt-limit deal reached in August 2011.

“In other words, just over a year later, we’ve already exhausted 87 percent of the $2.1 trillion increase in federal borrowing authority, averaging more than $4 billion in borrowing a day,” they wrote in a letter.

The reason for this is that the Treasury had to immediately cover past borrowing, which they were able to fend off using so-called “extraordinary measures,” as soon as the debt limit increased. So saying that the country “exhausted 87%” of the increase in a year is a misnomer.

But if you want to work forward from this, given that the budget deficit for fiscal year 2012 was around $1.089 trillion, and the policies of the next quarter are a bit more restrictive if anything (and with more jobs created, tax revenue increases and unemployment checks drop), my back-of-the-envelope estimate would be that the government hits the soft limit sometime in January.

Then Treasury can use its “extraordinary measures” again. In 2011, that bought them about three months, from May, when the limit was reached, until the beginning of August. So the best estimate for the drop-dead date would be March-April 2013.

As a hostage-taker, you need to know that drop-dead date. It allows you to time your ransom note. Republicans desperately want to time the debt limit to the fiscal cliff, to extract more concessions from Democrats in exchange for raising the limit. But that timing will probably not work out. Instead, we’ll see the next hostage-taking early in the next Congress, and the composition of that Congress is not known at the moment. Incidentally, how Congress handles the fiscal cliff will determine how quickly the debt limit gets reached. The more deficit reduction allowed to go through, the slower that debt limit comes. So Democrats, of a mind to go off the cliff and reset their negotiating position, would also push out the debt limit time frame, allowing them to try and incorporate that into any resolution.

The debt limit issue becomes more clear when we have a Congress and White House occupant in 2013, but this is a reminder that it lurks in the distance.

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David Dayen

David Dayen