Last week, the United States government avoided, or
said it had avoided, running out of cash, and by the skin of its wisdom teeth.
This happened when Congress and the White House agreed Friday on a budget that
let the Treasury borrow more. Apocalypse, almost now.
This close call is probably not the last. A few
lessons for the next time and the next country:
1. Above all, the Treasury must tell the truth. For
weeks, it had maintained that it could run out of cash by June 1. When it
became clear that Congress and the White House could not agree a budget by
then, it suddenly announced that given new (and unexplained) data, it could hang
on until June 5, affording a few more days for the Democrats and Republicans to
negotiate. The Treasury’s letter to Congress implied that this miracle was due
to a small swap of securities that, in reality, could barely affect its
solvency. Then on June 2, when the Treasury’s
cash fell below four-tenths of one percent of the federal budget for the year,
it suddenly—and contrary to recent forecasts—more than doubled the amount of
reported cash, thus maintaining a (barely) positive balance.
Probably the Treasury had worried that a report of a
cash shortage would rattle the markets. Or maybe it really did discover unforeseen cash: No forecast is 100% accurate. But in any case, its first duty is to
provide full and accurate information, regardless of consequences. The Treasury
monopolizes data on the government’s financial state. Investors and nations
rely on the agency to tell it like it is. Misleading them may have more lasting
consequences than a temporary market meltdown. For example, ratings agencies
may become more likely to mark down US bonds when the Treasury kitty is running
low again thanks to daredevil pols. When there are surprising changes in data
or in financial conditions, the Treasury should explain them fully and in real
time.
2.Get the jargon straight. Reporters and politicians
referred to a zero cash balance as “default” and pointed out that economists
regarded default as catastrophic. But by “default,” economists mean failing to
pay creditors—in this case, missing a payment of interest on Treasury
securities. Even when the Treasury’s pockets are empty, it can still pay
bondholders by refusing to pay somebody else.
Of a failure to agree a budget, President Joe Biden
said in his victory lap Friday: “Nothing — nothing would have been more
irresponsible. Nothing would have been more catastrophic….America’s standing as
the most trusted, reliable financial partner in the world would have been
shattered.” This is misleading. Running out of cash is bad enough without exaggerating
the consequences and thus creating skepticism about warnings of the next cash
shortage. We already have one Presidential candidate out there who thinks that
it’s OK to run a Treasury on fumes.
3.State forecasts as ranges rather than point
values. Deposits into and withdrawals
from Treasury funds fluctuate. It is hard to be sure what they will be on a
given day. Rather than state the forecast as an expected value, it would be
more useful to state it as a range of likely values: For example, a forecasted
deposit not of $100 billion but of $80 to $120 billion.
4.Inform the stakeholders. To avoid running out of
cash, the Treasury could have suspended pension payments to federal retirees.
In fact, this was by far the largest measure available, said the Bipartisan
Policy Center. Had the Treasury contemplated this, it should have told the
retirees. Of course, they would have tried to stop the suspension, giving
the Treasury grief. But they are still entitled to their say. As it happens, the
Treasury has been so close-mouthed that we still don’t know how it avoided a hollow piggy bank.
5.Prepare Plan B. When it runs out of cash, the
Treasury must decide whom not to pay. Rather than protect large groups such as folks
on Social Security, it would be less painful to target the richest recipients of
Treasury checks first, with a computer algorithm ranking them by income. In the
past crisis, any spending cuts would have fallen on the groups with the least
political power: The poor, the children, the immigrants. But their pain from
cuts probably surpasses that of others.
6.A bipartisan committee can direct plans for future
budgets, years in advance, so that we avoid another catfight at the midnight-hour.
7.The journalism schools could train financial reporters
who are not stenographers. The problem is that when The New York Times screws
up, everyone else falls in line. Whatever happened to competition among
Washington reporters? – Leon Taylor, Baltimore, tayloralmaty@gmail.com
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