Now Playing: Debt-Ceiling Drama LXXIV

19,808,772,381,624.74. No, this is too small to be Avogadro’s number. Rather, it is the current ceiling on US public debt subject to limit. Among the sorrier spectacles in our representative democracy are the dramatic standoffs in which the Congress refuses to increase this limit, constraining the Treasury’s operations and ultimately risking default. It is a hollow exercise because no one wants actually to default and jeopardize the status of the dollar as the world’s reserve currency. It is also a repeated performance, spread across the 74 times the Congress has raised the limit since 1962.

The show is back in town, with Treasury Secretary Mnuchin writing to Congressional leaders of the urgent need "… to increase the nation’s borrowing authority by September 29, 2017". This is an estimate, of course, since the US government is large and complicated, with unpredictable inflows to and outflows from its coffers. The gold standard for calculating the drop-dead date when the Treasury would no longer have enough cash to fund its operations is provided by the Bipartisan Policy Center. Their current assessment is that this event risk becomes elevated starting October 2nd.

As with any show that runs through endless sequels, the latest one does not seem to be getting much attention, at least in terms of Google news searches in the US. Judging by the location of those searches, the people who are interested are either fearful Inside-the-Beltway types or hopeful Western libertarians. Investors of any type, though, must be mindful because the four-week Treasury bill auctioned next week matures after Mnuchin’s circle on the Congressional calendar. There is a kink in the money-market yield curve, consistent with the intuition that toying with the threat of nonpayment is costly for an issuer. Indeed, researchers have found taxpayers paid for debt-ceiling crises in terms of higher borrowing costs.

The debt ceiling (1) confounds stocks and flows, (2) is pinned to an unsatisfying concept of the public debt, (3) invites gimmicks, (4) requires a government official to violate the law if it were to bite, but (5) may have no market bite thanks to processing improvements at the Federal Reserve, the fiscal agent of the Treasury. We take these issues in turn.

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