In many ways, the thought that the United States of America would default is utterly preposterous.
The nation has never repudiated its debt. The full faith and credit of the federal government has been a cornerstone of U.S. policy since the days of Alexander Hamilton. And no one really questions America's ability to pay.
But in the age of Trump, Wall Street isn't taking anything for granted.
While Republican leaders are confident their party can set aside its differences to resolve the latest debt-limit impasse before the clock runs out sometime between late September and mid-October, investors are shying away from Treasury bills earlier than they have in the past. Last month, they pushed up costs at a sale of three-month bills to the highest since 2008.
Of course, this song and dance over the debt ceiling has become a biennial ritual of sorts on Capitol Hill: A manufactured crisis created by hardline Tea Party Republicans, which causes lots of hand-wringing but always gets worked out before anything really bad happens. Just this month, Mark Meadows, a leading House conservative, appeared to soften his demands and indicated he was optimistic about getting a deal done.
But with a president who's willing to say the U.S. government "needs a good 'shutdown, '" a growing number of investors in the world's most important market aren't taking any chances.
"Everybody just gets a little concerned that with the volatility of this administration, some different path could be taken," said Deborah Cunningham, chief investment officer for money markets at Federated Investors, which oversees $242 billion in money funds.
America's Credibility
What's at stake goes beyond America's credibility in the global debt markets. Not only does the U.S. government owe $7 billion in interest on Oct. 2, it's also on the hook for $48 billion for Medicare, pay for active-duty military members and benefit payments for civil service and military retirees.
Federated is one of several firms avoiding T-bills that mature shortly after Sept. 29, when Treasury Secretary Steven Mnuchin estimates the government will no longer have enough cash to pay its obligations. Because the United States is constantly issuing short-term debt, any lingering worries could lead to steeper costs for taxpayers when it sells four-week bills on Sept. 5 and Sept. 12.
In and of itself, passing a "clean" bill to raise the debt limit shouldn't be hard. But Congress, which returns from its summer recess on Sept. 5, won't have a lot of time. The House will have 12 working days, and the Senate 17, to raise the debt ceiling, based on a letter Mnuchin sent to Speaker Paul Ryan.
The political dysfunction within the Republican Party, which controls both chambers, doesn't help. Differences between moderates and conservatives torpedoed the GOP's attempts to change the Affordable Care Act, something Republicans have vowed to do for years. And they still haven't tackled many of President Donald Trump's campaign promises like tax cuts or infrastructure spending.
OMB Director Mick Mulvaney (Photo: Congress.gov)