Debt ceiling, government shutdown battles simmer in summer recess

FILE: Jan. 21, 2013: Treasury Secretary Jack Lew, arrives on the West Front of the Capitol, in Washington, D.C.

FILE: Jan. 21, 2013: Treasury Secretary Jack Lew, arrives on the West Front of the Capitol, in Washington, D.C.  (AP)

The Washington dance of flirting with fiscal catastrophe intensified this week, as the Obama administration warned House Republicans that a deal on increasing the federal debt limit may have to come sooner than expected. 

The warning came in a letter from Treasury Secretary Jack Lew to House Speaker John Boehner, who along with other members of Congress is still on summer recess and not expected to return until early September. That leaves little time to deal with two looming deadlines that have not yet been addressed. 

In order to first prevent a partial government shutdown, Congress and the Obama administration must agree on at least a temporary spending deal. 

Such a bill is typically reached without too much partisan wrangling. But this year’s effort is being complicated by Republicans saying any measure should include the steep cuts known as sequester that started this spring, and by some Democrats insisting they be removed. Plus a small-but-vocal group of Tea Party-backed Republicans is stirring the pot by trying to insist that funding for the president’s health care law, whose official signup date also is Oct. 1, be stripped from any budget bill. 

Lew, in his letter on Monday, said the debt-ceiling deadline will follow close behind. According to Lew, the Treasury Department will run out of so-called "extraordinary measures" -- tactics to avoid bumping up against the debt ceiling -- in the middle of October, risking a default unless Congress raises the cap. 

“Extending borrowing authority does not increase government spending; it simply allows the Treasury to pay for expenditures Congress has previously approved,” Lew told Boehner, R-Ohio. “Protecting the … credit of the United States is the responsibility of the Congress because only Congress can extend the nation’s borrowing authority.” 

Boehner's office fired back, with a spokesman saying the debt ceiling is a reminder that "under President Obama, Washington has failed to deal seriously with America's debt and deficit."

Boehner and Obama reached a complex deal in 2011, agreeing to roughly $900 billion in immediate spending cuts in order to increase borrowing authority by roughly the same amount. That deal laid the groundwork for the even larger cuts now known as sequester, as well as more increases in the debt ceiling.

But the high-wire act had a major economic impact -- roiling financial markets worldwide and contributing to Standard & Poor's downgrading the credit rating on U.S. bonds.

The debt ceiling right now is $16.7 trillion. Economists had for months predicted the federal government would no longer be able to pay its bills after Labor Day, but at least some thought the deadline was closer to November.

Lew told Congress that if the government cannot increase its borrowing authority, then it must use the $50 billion in cash held by the Treasury, which has no solid way of predicting when all of that money will be spent.

The White House and a group of Republican senators have worked in recent months on proposed fiscal deals to avoid last-minute negotiations, but those talks have purportedly stalled.

Though Boehner indicated last week that he wants to pass a short-term spending bill to avoid a government shutdown, he reportedly vowed Monday to put up a “whale of a fight” over the debt limit.  

"I've made it clear that we're not going to increase the debt limit without cuts and reforms that are greater than the increase in the debt limit," he said at a fundraiser for Idaho Republican Rep. Mike Simpson, according to the Idaho Statesman.

Michigan Rep. Sander Levin, the top Democrat on the House Ways and Means Committee, after Lew’s letter urged the GOP to increase the debt limit.

“With just nine legislative days currently scheduled in September, Republicans must return to Congress prepared to move beyond the kind of brinksmanship that undermined our economic recovery two years ago,” he said. “It is time for Republicans to do the right thing – not the far right thing.”