Clearing the Air on the Debt Limit Page: 6 of 15
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Clearing the Air on the Debt Limit
Political scientists Thomas Mann and Norman Ornstein contend that a technical default occurred
in October 1977, when a temporary debt limit increase lapsed before a revised debt limit measure
was enacted." The previous debt limit measure (PL. 94-334), enacted on June 30, 1976, included
three temporary increases in the debt limit for specific time periods above a "permanent" limit of
$400 billion. The last temporary increase of $300 billion lapsed after Friday, September 30, 1977.
While both the House and Senate had approved a debt limit measure by that date, differences
were not resolved until Tuesday, October 4, 1977, when it was enacted. Thus, for two business
days, federal debt, which was close to $700 billion, was above its statutory limit of $400 billion.16
After the temporary debt limit increase lapsed, Treasury could not borrow, though its cash
reserves were sufficient to meet federal obligations until the new measure was enacted, even if
some special financial measures were employed.'7 No federal payments, however, were missed or
delayed-suggesting that no technical default occurred. Moreover, federal officials responsible
for issuing that debt acted within their statutory authorities.
Others have pointed to a 1979 episode when some interest and principal payments to some small
investors holding Treasury securities were delayed.'8 In late April and early May 1979, about
4,000 Treasury checks for interest payments and security redemptions were delayed due to back-
office technical and organizational problems, in part related to a reorganization of Treasury debt
operations.19 Delays affected payments estimated at $122 million, with foregone interest totaling
an estimated $125,000.20 Those amounts represented a small share of the market in Treasury
securities: for instance, a few days before those delays, the U.S. Treasury rolled over $6 billion in
debt.21 The federal government may have reached a settlement with affected investors.22
Some ascribe those payment delays to a debt limit episode. A temporary increase in the debt limit
(PL. 96-5), however, was enacted on April 2, 1979-more than three weeks before the first
delayed payment.23 Those payment delays were also blamed for increasing federal borrowing
costs.24 Market interest rate movements on the date of the first payment delay April 26, 1979
were more plausibly affected by significant Federal Reserve announcements made that day25
rather than payment delays that were not reported until a week and a half later.26
'5 Thomas E. Mann and Norman J. Ornstein, It's Even Worse than it Looks (New York: Basic Books, 2012), p. 6. Two
other lapses occurred in 1956 and 1973. A temporary debt limit lapsed after June 30, 1956. On July 9, 1956, Congress
retroactively raised the debt limit from July 1, 1955, through June 30, 1957 (70 Stat. 519; P.L. 84-678). A temporary
debt limit lapsed after November 30, 1973, and was followed by another temporary increase enacted on December 3,
1973 (87 Stat. 691; P.L. 93-173).
16 31 U.S.C. 757b. That section was superseded after a 1984 codification.
'" "Expired Debt Ceiling Sparks Juggling Act by U.S. Treasury," Wall Street Journal, October 3, 1977, p. 31.
18 Edward D. Kleinbard, "The Debt-Ceiling Crisis Is Real," New York Times, August 7, 2017;
https://www.nytimes.com/2017/08/07/opinion/debt-ceiling-congress-default-real.html. Also see Terry L. Zivney and
Richard D. Marcus, "The Day the United States Defaulted on Treasury Bills," Financial Review, vol. 24 (1989), issue
3, pp. 475-489.
19 For details, see CRS Report R44704, Has the U.S. Government Ever "Defaulted"?, by D. Andrew Austin.
20 Zivney and Marcus, op. cit.
21 "Treasury Bill Auction to Reduce U.S. Debt by About $200 Million," Wall Street Journal, April 5, 1979.
22 A class action suit was dismissed with prejudice on May 12, 1980, which barred refiling of the claim. The resolution
of the suit is unclear because case records were destroyed on November 28, 2011.
23 Kleinbard, op. cit.
24 Kleinbard, op. cit. and Zivney and Marcus, op. cit.
25 "Big Boost in Money Supply May Put Fed Under Heavy Pressure to Tighten Credit," Wall Street Journal, April 27,
1979, p. 32.
26 Edward P. Foldessy, "Treasury Hits Delays in Mailing Checks to the Holders of its Maturing Securities," Wall Street
Congressional Research Service
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Austin, D. Andrew & Thomas, Kenneth R. Clearing the Air on the Debt Limit, report, November 2, 2017; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc1043199/m1/6/: accessed March 20, 2019), University of North Texas Libraries, Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.