Should We Eliminate the Extraordinary Measures?

By :: October 11th, 2013

You’ve probably heard that Treasury will hit the debt limit on October 17 and soon thereafter it won’t be able to pay all of America’s bills. That second part is true: Congress needs to act soon—preferably before the 17th—so Treasury doesn’t miss any payments. But the first part isn’t: Treasury actually hit the debt limit way back on May 19.

So how did Treasury keep paying our bills? Extraordinary measures.

When money gets tight, Treasury uses several accounting gimmicks and cash flow sleights of hand—the extraordinary measures—for extra financing. The easiest to explain involves the G-Fund, which is offered to federal employees through their equivalent of a 401(k) plan. As its name implies, that fund invests in government bonds. But the Treasury Secretary has a special power: he can replace those bonds with IOUs. I kid you not. One day the G-Fund has Treasury bonds, and the next it has IOUs. Those IOUs don’t count against the debt limit, but they will eventually be repaid with interest once the debt limit gets increased. Employees don’t lose anything, and Treasury gets some extra financing room.

Such budget gimmickry used to inspire outrage. In 1995, pundits accused Treasury Secretary Robert Rubin of violating his fiduciary duty and robbing federal employees when he did this. Today, the same action generates nary a peep; stuffing the G-fund with IOUs is standard operating protocol.

So it is with the other extraordinary measures (for a full list, see here). Once extraordinary, they are now merely ordinary. No one takes the debt limit seriously until the extraordinary measures are running on fumes, as they are today.

That’s what makes a new proposal from House Republicans intriguing. News reports indicate that they want to permanently eliminate some extraordinary measures as part of a debt limit deal.

At first glance, you might worry that killing off those measures would undermine the financing buffer Treasury relies on in times of fiscal discord. But here’s the thing: Our leaders already take that buffer for granted. They know the gas gauge is flashing empty, but they don’t pull into the next station. Instead, they ask the fuel engineers at Treasury how much further we can make it. When the engineers say 30 miles, we drive another 29 ½.

Eliminating the extraordinary measures wouldn’t change the unpleasant brinksmanship of the debt limit. It would merely shift the focus from the day extraordinary measures are exhausted to the day we first hit the debt limit. In return, it would increase the transparency of our goofy budget process and would rid us of the embarrassingly casual use of fiscal gimmicks.

That’s a trade worth considering. But the gains must be balanced against some caveats.

First, the extraordinary measures might be providing some fiscal buffer that remains unused, even now. For example, the Bipartisan Policy Center recently noted that an aggressive reading of the law might allow the Treasury Secretary to squeeze a bit more money out of one measure, known as the debt issuance suspension period. As BPC explains, that would be a dubious maneuver, but it would be better than default. So perhaps we could be giving up a bit of flexibility.

Second, eliminating the extraordinary measures would reduce the time the next debt limit increase will last. Early this year, Congress raised the debt limit through May 18, but the extraordinary measures got us well into October. Without those measures, a similar increase now, perhaps to November 22, would come with no extra buffer. That’s a plus for transparency, but a minus if you want to avoid the debt limit as long as possible.

Third, for the same reason, eliminating the extraordinary measures would make it easier for Congress to time when the debt limit comes to a head. That could be a plus or a minus depending on your view of congressional intentions.

Finally, our political system might need several months of a blinking “empty” light to get people ready to act. My sense is that most people are now inured to the flashing and don’t even realize we hit the debt limit months ago. But maybe the flashing still serves some purpose.

In short, the idea of eliminating the extraordinary measures is an interesting addition to the debt limit debate. Those measures provide much less flexibility than they used to. As with star ballplayers, there is some logic to retiring extraordinary measures once they’ve become merely ordinary. But the idea requires more tire-kicking to determine how any costs stack up against the benefits of a clearer, less gimmicky budget process.

6Comments

  1. Vivian Darkbloom  ::  9:05 am on October 11th, 2013:

    I agree that this gimmicks should be eliminated. And Marron is right that it really does not change the existing dynamics over “brinkmanship”. But, I’m totally unconvinced by the listed negative “caveats”.

    The gas tank analogy is a useful one, so let’s it.

    First, I fail to see any “advantage’ in having a gas gauge that is unreliable. As a driver, one should take comfort in knowing that if the gauge says you’ve got 1 gallon left, you’ve got 1 gallon. Leaving this to speculation that you “might” have more just leads to reckless driving;

    Second, eliminating the gimmicks would *not* reduce the time needed to fill up the gas tank. This is completely illusory. In setting the debt limit, Congress determines the size of the tank. If they want more “time” they will make the tank bigger before they start the journey. This “caveat” is seemingly based on the erroneous assumption that the tank is always the same size. Further, Congress also has control over the fuel consumption. If they want more “time” from their tank, they can also cut down on their speed.

    Third, knowing when you are going to run out of gas is not a disadvantage. See, “First”.

    Finally, that “blinking light” is as illusory a distinction as the “buying more time” under “Second”. If you know that your tank has 100 gallons, then the light should start blinking when you’ve got, say 10 left. Isn’t that how gas gauges work? They don’t start blinking when your tank has nothing in it in the dubious and dangerous assumption that the fumes will keep you going a bit longer. See also, “First”.

  2. Tax Roundup, 10/11/13: Why filing on time matters. And: nope, still closed. « Roth & Company, P.C  ::  9:39 am on October 11th, 2013:

    […] Critical Question:  Should We Eliminate the Extraordinary Measures? (Donald […]

  3. Michael Bindner  ::  3:50 pm on October 11th, 2013:

    If we are going to make changes, simply eliminating the debt ceiling entirely seems like a good idea, along with eventually increasing taxes on the top 20% of income earners by enough to actually stop borrowing money. Going after the 1% simply is not good enough.

  4. jo  ::  1:43 pm on October 14th, 2013:

    Why do we care if we default? What is so great about leeching money from people who work to give to those who don’t (passive investor) or nation building?

    By cutting the fed out of what we pay for social services (medical, unemployment) and instead providing these at municipal/county and state level we can start sustainability. Like fire, police, sanitation, medical care should not go through the fed or high profit margin insurance corp

  5. Carlton  ::  12:36 pm on October 15th, 2013:

    The debt ceiling is just for show, as is evident by the fact that it was actually breached back in May. The best option available at this point is not to raise the debt ceiling, thereby forcing the federal government to reduce its expenditures.

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