Mnuchin delivered the ominous tidings to lawmakers in a letter to House Speaker Paul D. Ryan (R-Wis.) on July 28 -- in it, he said the federal government is locked on a collision course with its borrowing limit, and impact is approaching as soon as Sept. 29.

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So far, neither the White House nor congressional Republicans have a plan for squeezing a borrowing extension out of the twelve legislative days in September following the August recess. It’s not even clear they have a plan to get a plan. Mnuchin made no progress on the matter in a Tuesday huddle with Senate Majority Leader Mitch McConnell (R-Ky.) and Senate Minority Leader Charles E. Schumer (D-N.Y.). As my colleague Damian Paletta reports, the meeting ended “without a clear sense of what the lawmakers need to deliver votes to raise the limit.”

Mnuchin continues to press for a so-called "clean" debt limit hike -- which means no controversial policy riders would be attached -- but it's far from clear that approach could draw the support it needs either from Republicans or Democrats.

The conservative House Freedom Caucus, for example, is demanding hefty concessions as the price of its support; Democrats are signaling they won’t sign off on a clean hike while the GOP eyes deficit-busting tax cuts. McConnell last month floated the possibility of pairing a hike with funding for a program that allows military vets to get medical care outside the Veterans Affairs system, but the Senate now looks poised to pass that measure on its own before breaking for August.

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Investors are starting to notice the warning signs of yet another manufactured crisis, with interest rates on Treasury bills maturing in October starting to creep up Tuesday. “We have a ways to go if things get really dicey, but this is a textbook debt ceiling response,” Louis Crandall, chief economist at Wrightson ICAP, tells me.

Since the U.S. has never defaulted on its debt, we don't really know what would happen in the event of a true debt ceiling breach. But back when Washington last flirted with disaster, in 2013, RBC Capital Markets analysts walked through how things would likely play out if Treasury was forced to try to choose which creditors it paid and which it stiffed:

Let us be perfectly clear: crossing the debt ceiling would be catastrophic.

The Treasury’s systems do not clearly mark what scheduled payments are for what reasons, so it is impractical to try to prioritize payments. And clearing systems like Fedwire do not allow defaulted securities to flow, so the system would seize. In order for the clearing systems to work, the Treasury would need to notify the market of a default almost a day before the default happened (to give everyone time to modify payments), and that is not going to happen because the Treasury will not want to declare default while Congress still has time to pass a bill. Also the Fed does not take defaulted securities as collateral at the discount window, even if those securities are still trading at par.

In plain English, default would throw a wrench into the global financial system, setting off a cascade of horribles that includes a spike in interest rates worldwide and a stock market crash.

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Markets may be assuming that policymakers will strike a deal in time one way or another, because they always have, including twice during the Obama administration when standoffs at first looked irreconcilable. Still, as Crandall warned in his latest note to clients, the outlook “remains extremely uncertain,” and past performance is no guarantee of future success, since “very little has played out along traditional lines in Washington this year.”

For one, lawmakers’ attention will be divided among a host of must-pass measures, against a dwindling clock, when they return to work after Labor Day. On top of the debt-ceiling hike, they must approve a funding package to keep government operating, reauthorize a health insurance program for low-income children and extend the federal flood insurance program.

GOP leaders on the Hill can untie some of those knots themselves. But a debt ceiling hike will require leadership from the administration.

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And in the wake of the health-care overhaul's collapse, Trump’s ability to corral his own would-be foot soldiers on Capitol Hill is rapidly vanishing. As my colleague Sean Sullivan writes, “The relationship between President Trump and Senate Republicans has deteriorated so sharply in recent days that some are openly defying his directives, bringing long-simmering tensions to a boil as the GOP labors to reorient its stalled legislative agenda.” A debt default represents an unthinkably high price for Republican dysfunction, and everyone would be stuck with the tab.

That may be why Post opinion writer Catherine Rampell described former Freedom Caucuser and Office of Management and Budget Director Mick Mulvaney as the "most dangerous man in Washington" because "he seems hell-bent on wreaking a global crisis within the next two months." Rampell points out that Mulvaney, who repeatedly voted against debt ceiling increases while in the House, said as recently as last Sunday that Republicans had an obligation to stick with their health-care efforts.

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Here's our fact checkers' guide to raising the debt ceiling:

TRUMP TRACKER

— The Trump administration is preparing a trade offensive to crack down on Chinese intellectual property theft — and make it easier for American companies to get Chinese market access without sharing advanced technology. The moves could lead to U.S. sanctions on Chinese exporters. The Wall Street Journal's Jacob Schlesinger and Bob Davis report: "One big question hanging over the White House review is whether the administration pursues any complaint through the World Trade Organization, or whether it chooses to impose penalties on its own without first seeking permission from the international body, which some Trump advisers have argued is incapable of dealing with China’s trade practices. Trump aides have regularly vowed to pursue a more unilateral approach to trade but have so far done little along those lines. It is unclear how long the administration’s internal review will take before an announcement is made. Officials at one point had signaled that an announcement could come as soon as this week."

— Trump's pick to head the Export-Import Bank, former Rep Scott Garrett (R-N.J.), is facing new calls to step aside after a disastrous meeting with eight Senate Democrats yesterday. Garrett, who opposed the bank's existence while he was in Congress, has faced mounting criticism from industry groups; and South Carolina Sen. Lindsey O. Graham (R-S.C.) has called on the administration to pull his nomination. The Democrats who met with Garrett on Tuesday — a group that includes Schumer — released a joint statement afterward that needs to be read in full. It is brutal:

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“Today’s meeting was bizarre. Scott Garrett – one of the most vocal opponents of the Export-Import Bank while he was in Congress – agreed to speak with us about his nomination, but during the meeting, he wouldn’t discuss his personal thoughts about the Bank and its mission. He refused to confirm that he would unequivocally support reauthorizing the Bank, with the current authorization expiring in September 2019. And he clearly knew very little about the critical work the Bank is doing to support small businesses and expand opportunities for U.S. manufacturers, which was both surprising and concerning. So we’re supposed to trust that someone who has extensive history undermining and disparaging the Bank will now support and lead it even though he doesn’t seem to believe his own words? We need a nominee who truly believes in the mission of the Bank and who wants to support and defend an agency that has a more than 80 year history supporting American jobs and businesses. The Bank has overwhelming support from Republicans and Democrats in Congress, and we need a leader of the Bank who also fully stands by its goals.”

It is hard to imagine how his nomination survives.

MARKET MOVERS

As a candidate, Trump regularly criticized what he called an overheated stock market and predicted its imminent collapse. As president, he's taken credit for its continued climb as evidence of a strengthening economy:

— Consumer prices stayed flat in June and inflation continues to limp along below the Fed's 2 percent target, potentially throwing cold water on the central bank's schedule for raising interest rates. The Wall Street Journal's Sarah Chaney reports: "The Fed’s preferred measure of inflation, the price index for personal-consumption expenditures, was unchanged in June from the prior month, the second straight flat reading. It was up 1.4% in June from a year earlier and has dropped for four consecutive months on an annual basis, from 2.2% in February... The Fed sees low inflation as a sign of broader economic weakness, which is why it seeks to keep it steady at around 2%. The persistent softness in inflation readings has some economists wondering if broad forces are at play holding down inflation as prices for items ranging from apparel to shelter have softened in recent months."

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BUT, prices for copper and oil are starting to rise, which could prove leading indicators, per CNBC's Thomas Franck.

— DOW 22,000: It's getting close, touching its fifth straight record-high Tuesday, powered by gains in big bank stocks.

--And Paul Ryan can't wait to spend millions on Trump's wall between the United States and Mexico. From Amber Phillips: "Why is [Ryan] so excited about this wall that his office released a video from his trip to the Rio Grande Valley featuring horses, helicopters, boats and techno music to sell it? Ryan is the king of budget belt-tightening, so why does he want to spend untold billions of taxpayer money to build a border wall? Answer: He probably really doesn't. 'Messaging,' said Steve Bell, a former top GOP Senate budget aide now with the Bipartisan Policy Center, explaining why he thinks Ryan made that video. 'I think they want to be able to go back home, having to face voters in 2018, and say, 'I voted for the wall.'"

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THE REGULATORS

— The five regulatory agencies that crafted the Volcker Rule have agreed to work together on rewriting it. The changes will give banks more wiggle room on for trading on behalf of clients and making private equity and hedge fund investments. Bloomberg's Benjamin Bain and Jesse Hamilton report: "The agencies can revise the 2013 rule’s text, but unless it is repealed, there’s only so much that can be done to answer years of lobbying by financial titans including Goldman Sachs Group Inc. and JPMorgan Chase & Co. While the agencies agreed to start editing the rule during a meeting of the Financial Stability Oversight Council -- a panel of regulators led by the Treasury secretary -- at least one of them is also looking to gather outside input. The Office of the Comptroller of the Currency is poised to request public comments on Volcker, according to Keith Noreika, who is running the agency on a temporary basis."

POCKET CHANGE

— Trump on Tuesday said Foxconn chief Terry Gou told him "off the record" that the company could triple its U.S. investment to $30 billion. CNBC's Todd Haselton: "Trump's comments came a press conference during small business event at the White House... Chinese company Foxconn said last week it would to spend $10 billion on a state-of-the-art manufacturing facility in Wisconsin, and create 3,000 jobs in the process. Another, larger facility is also under negotiation."

MONEY ON THE HILL

— McConnell reaffirmed that Republicans will seek to tackle a tax code overhaul without Democratic support. Politico's Elana Schor reports: "In explaining his decision to reporters, the Kentucky Republican cited a Tuesday letter from 45 Democratic senators urging Republicans not to use reconciliation and vowing to oppose a tax plan that adds to the deficit or cuts the annual bill of the richest 1 percent of taxpayers. 'We will need to use reconciliation' for taxes in the wake of Democrats’ statement that they are 'not interested in addressing' Republican priorities, McConnell said."

— Trump may not support raising the taxes on the highest-income earners after all. In a Wall Street Journal interview last week, the president appeared to endorse the notion, advanced by his chief strategist Stephen K. Bannon, that the wealthy should pay more to fund a middle-class tax cut. But in previously unreported remark from a leaked transcript of the exchange, Trump shot the idea down, The Daily Beast's Lachlan Markey and Asawin Suebaeng report.

-- My colleague Damian Paletta reports on two reasons why a tax overhaul might be delayed (we laid this out in some detail yesterday): "Republican leaders in Congress, however, face a pair of deadlines that are delaying any action on taxes. The current budget is set to expire at the end of September, and unless Congress approves new funding, there will be a partial government shutdown that will close national parks and put hundreds of thousands of federal workers on unpaid leave. Congress’s most immediate concern, however, is the debt ceiling ... 'September will be a month when the Trump administration faces its most significant test on Capitol Hill,' said Brian Gardner, Washington policy analyst for Keefe Bruyette & Woods, an investment banking firm. 'Passing spending bills and raising the debt ceiling must be done.'

Here's a cover of the memorable phrase, "Reclaiming my time," from Waters's face-off with Mnuchin last week:

DAYBOOK

Today

The American Bar Association holds an event the common cross-border issues in M&A and Tax Planning.

The Brookings Institution holds an event on the procedure and politics in the 115th Congress.

Coming Up

Thursday. The Senate Finance Committee holds a hearing on various nominations on

BULL SESSION

Sen. Charles E. Schumer (D-N.Y.) calls for bipartisan tax reform:

Rep. Maxine Waters (D-Calif.) sparked social media hashtags and viral memes when she interrupted Treasury Secretary Steven Mnuchin's answer to her question by repeating the phrase, "Reclaiming my time":

Here are four times Rep. Maxine Waters owned the Internet:

Senate Majority Leader Mitch McConnell (R-Ky.) says raising the debt ceiling “will need to be done” to prevent a default:

From The Tonight Show Starring Jimmy Fallon, a LinkedIn for people who've left the Trump administration: