Fiscal Policy: A September To Remember

Around this time last year, we focused our weekly commentaries on the economic issues surrounding the 2020 U.S. presidential election, starting with a review of the fiscal outlook. Whoever won, we suspected that the first year of the presidential term would be a challenging one, financially. We were correct: and now, several major fiscal issues are coming to a head at once. The next month will be a critical time in Washington.

Funding the Government

As of this summer, the debt ceiling went back into force after a two-year suspension. This policy limits the U.S. Treasury Department’s ability to issue debt; in the extreme, running up against the ceiling could create a severe cash crunch that could lead to a debt default. We have expressed our skepticism of the ceiling: a measure meant to simplify Treasury operations unintentionally became a cudgel with the potential to cause a crisis. The latest warning from the Treasury is that it will run out of cash in October. Markets have been sanguine thus far, as the limit has always been raised before serious economic harm is done. While we expect the limit to increase again, we do not encourage playing with fire.

U.S. Fiscal Agenda and Senate Infrastructure Bill


The U.S. fiscal year ends September 30. Without a 2022 budget bill, the government will shut down. Congress can pass continuing resolutions to temporarily carry forward the prior year’s budget, but this just kicks a very big can down the road.

Shutdowns as budget negotiations drag on are not unusual, but they are disruptive to Federal functions and employees. They carry enough negative consequences that they should be avoided whenever possible.

Infrastructure: The Easy Part?

Earlier this year, the Biden administration launched its major policy initiatives in two waves. The first tranche focused on traditional, physical infrastructure.

In August, the Senate (but not yet the House) passed a $1.2 trillion bill that allots $550 billion for new infrastructure spending. This bill covers items with broad popularity, including maintaining roads and bridges and investing in broadband and electrical networks. These projects will bring widespread benefits to all Americans, and recent natural disasters have helped make the case for more investments in resiliency. And starting some longer-term investment programs now will help limit some of the fiscal drag that might result from the end of COVID-19 emergency spending.