If you have a car, you're probably aware of that light on your dashboard that lets you know when you're nearly out of gas. It's not a time to panic, of course, but rather it's a time to realize action is needed -- the car isn't about to stop running, but you're running low and need to do something routine before there's a real problem.
Tim Geithner's letter to Congress today is a bit like that light on the dash.
Treasury Secretary Tim Geithner announced Wednesday that the U.S. Government will hit its borrowing limit on December 31 if Congress doesn't act.
The announcement adds pressure on lawmakers to resolve many of the nation's fiscal challenges by the end of the year or go over the so-called "fiscal cliff," a set of spending cuts and tax increases that will fall into place automatically if Democrats and Republicans can't reach agreement.
Some of you may see the news and think, "Wait, don't we have months until we reach the ceiling? Does this mean Congress has to act by Monday? Should I stock up on canned goods and ammunition?"
Relax. Take a deep breath. This isn't a big deal -- at least, not quite yet.
The letter is largely a formality, and it's not unexpected. The nation will technically reach its borrowing limit on Monday, but as Geithner's letter (pdf) goes on to explain, the Treasury will then begin "extraordinary measures" -- which, regrettably, are increasingly ordinary -- providing policymakers "approximately $200 billion in headroom."
Once these efforts are exhausted, the nation will have reached its actual debt limit, which will require congressional action. How much time does $200 billion in "headroom" get us? Probably about two months.
And then we'll be in trouble.
On a related note, it didn't get a lot of attention last week, but President Obama was asked at a press briefing whether he's prepared to go along with the Republican hostage strategy, negotiating in order to get a debt-ceiling increase. Obama didn't equivocate; here's his complete answer:
"No. And I've been very clear about this. This is the United States of America, the greatest country on Earth, the world's economic superpower. And the idea that we lurch from crisis to crisis, and every six months, or every nine months, that we threaten not to pay our bills on stuff we've already bought, and default, and ruin the full faith and credit of the United States of America -- that's not how you run a great country.
"So I've put forward a very clear principle: I will not negotiate around the debt ceiling. We're not going to play the same game that we saw happen in 2011 -- which was hugely destructive; hurt our economy; provided more uncertainty to the business community than anything else that happened.
"And I'm not alone in this. If you go to Wall Street, including talking to a whole bunch of folks who spent a lot of money trying to beat me, they would say it would be disastrous for us to use the debt ceiling as a cudgel to try to win political points on Capitol Hill.
"So we're not going to do that -- which is why I think that part of what I hope over the next couple of days we see is a recognition that there is a way to go ahead and get what it is that you've been fighting for. These guys have been fighting for spending cuts. They can get some very meaningful spending cuts. This would amount to $2 trillion -- $2 trillion -- in spending cuts over the last couple of years. And in exchange, they're getting a little over a trillion dollars in revenue. And that meets the pledge that I made during the campaign, which was $2 to $2.50 of spending cuts for every revenue increase. And that's an approach that I think most Americans think is appropriate.
"But I will not negotiate around the debt ceiling. We're not going to do that again."
This contention will be tested; whether the president is prepared to stick to this remains to be seen.