Once again, the Treasury Department finds itself tap dancing to avoid getting shot in the foot by Congress. And if you think the Federal Reserve is going to tighten this week (who doesn’t?), this little routine might not be fully reflected in short-term funding rates.The gun in the scenario above is the debt limit, of course. Remember that arbitrary statutory ceiling on the absolute amount of US Treasuries outstanding? You know, the relic of the Second Liberty Loan Act of 1917 that puts the United States at risk of a technical default and, somehow, is still a law today? Yes, that one, which was introduced in its modern form almost 80 years ago, according to Kenneth Garbade, analyst at the New York Fed and go-to Treasury market historian.(Really, the uninitiated should have a look at the law. It just sets a number for the limit, it’s not even tied to a budget or a percentage of gross domestic product or anything.)Luckily for the US — well, sadly, really — the Treasury has done this a few times in the past several years, so it’s built up some muscle institutional memory of the “extraordinary measures” that can be used to delay a breach of the ceiling. And it seems reasonable to say that there’s less risk of a technical default, since it’s unlikely that the Republican Congress will be tough on the Treasury now that there’s a Republican in the White House.
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Once again, the Treasury Department finds itself