GAO: 2011 Debt Ceiling Showdown Cost $1.3 Billion
(CNSNews.com) – A new report from the Government Accountability Office finds that last year’s debt ceiling showdown between House Republicans and the White House cost the government $1.3 billion – increasing market uncertainty and raising federal borrowing costs.
“Delays in raising the debt limit can create uncertainty in the Treasury [bond] market and lead to higher Treasury borrowing costs. GAO estimated that delays in raising the debt limit in 2011 led to an increase in Treasury’s borrowing costs of about $1.3 billion in fiscal year 2011,” GAO reported Monday.
In other words, because Congress and the White House waited until the absolute last minute to raise the debt ceiling, the government had to pay an extra $1.3 billion in higher interest rates, according to the government watchdog agency.
GAO also said that the total cost of the 2011 debt-ceiling fight was unknown because the debt issued by the government will not be fully paid off for many more years.
“Many of the Treasury securities issued during the 2011 debt limit event period will remain outstanding for years to come. Accordingly, the multiyear increase in borrowing costs arising from the event is greater than the additional borrowing costs during fiscal year 2011 alone,” GAO said.
GAO estimated the cost to the government by comparing interest rates on federal bonds before the debt-ceiling fight to rates seen at the time that House and administration negotiators were working out their deal.
GAO found that the interest rates on longer-term federal bonds – those with maturity rates of two years or longer – rose during the period that congressional and administration officials were waging their public debt-ceiling fight. Higher interest rates indicated that the down-to-the-wire negotiations increased market uncertainty over whether the federal government would raise the debt ceiling and be able to fully pay its debts.
The debt ceiling is the legal limit on how much public debt the U.S. Treasury may have outstanding at any one time. It sets the limit on how much the federal government may borrow to finance the cost of spending that has already been approved by Congress. It is not a limit on how much Congress can spend in the future.
From May to August of 2011, the Treasury Department was forced to take what it called “extraordinary measures” to prevent the government from running afoul of the debt limit, suspending scheduled payments to some civil service pension funds and temporarily suspending the issuance of some types of federal debt.
Treasury was forced to take the actions because the federal debt had nearly reached the limit of $14.3 trillion Congress had set in February 2010 and it was not legally allowed to borrow above the limit.
During this time, congressional leaders -- especially House Republican leaders -- were engaged in negotiations with the Obama administration over a comprehensive package to cut future federal spending in exchange for raising the debt limit.
That agreement – the Budget Control Act – capped federal domestic spending at $1.04 trillion in fiscal year 2012 and raised the debt limit to $16.4 trillion in three phases.