Robert J. Samuelson: Trump hits the debt ceiling

Pablo Martinez Monsivais, AP

This Thursday, June 8, 2017, photo shows the U.S. Treasury Department building in Washington. On Monday, June 12, 2017, the Treasury releases the federal budget for May.

WASHINGTON — The crucial question about raising the federal debt ceiling is: What happens if Congress doesn’t? That is, what happens if Congress defaults? When President Trump returns from his “working vacation” later this month, this promises to be one of the major issues he’ll face, because the Treasury is expected to run out of cash in early or mid-October, according to projections by the Congressional Budget Office.

The current debt ceiling is $19.8 trillion, which covers Treasury borrowings from the public (individuals, large institutional investors like pension funds and banks) and from other government agencies (such as the Social Security Trust Fund or the Highway Trust Fund). If the government hit the ceiling and couldn’t pay all its bills, then someone would get stiffed: bond holders, Social Security recipients, soldiers and sailors, government vendors — and, possibly, many more.

The harder question is: How would the world react?

Investing in U.S. Treasury securities (bills, notes and bonds, each with different maturities) is one way that foreign individuals, multinational companies, governments and banks protect their financial well-being. The dollar is the major form of international money; U.S. Treasury securities are considered the world’s safest financial assets. Would a default trigger a panic, as investors dumped Treasuries? Or would investors just yawn on the assumption that, sooner or later, Congress would raise the debt ceiling and make good on its debts?

A recent analysis from the Brookings Institution, a liberal think tank, wisely observes: “Congress has never failed to act in time, so no one knows with certainty what the consequences [of a default] would be.”

The Brookings analysis is a good starting point for background. From it, you learn that the debt ceiling didn’t exist before 1917. Congress had to authorize every borrowing individually. But when the U.S. entered World War I,…

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