The U.S. government hit its statutory $31.4 trillion debt limit Thursday, Treasury Secretary Janet Yellen announced, prompting the Treasury to start taking “extraordinary measures” in order for the nation to avoid a catastrophic default for at least the next few months.
In a letter to House Speaker Kevin McCarthy, Yellen informed him that the federal government has officially reached its artificial statutory limit of $31.381 trillion, forcing the Treasury to implement extraordinary cash management measures to stave off default on its outstanding debt for a few months.
The “extraordinary measures” will begin to sell existing investments and suspend reinvestments of the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund, while also suspending reinvestments in the government securities fund of the Federal Employees Retirement System Thrift Savings Plan. These funds are invested in special-issue Treasury securities, which count against the debt limit and give the Treasury enough financial space and time to pay its day-to-day expenses until roughly June 5th.
The debt ceiling is the legal cap set by Congress on the amount the U.S. government can borrow to pay for its existing obligations and pay the bills it has accrued. It’s best described as the national credit card limit given to the government with a cap limit on the amount it can borrow to finance its operation. Since the legislative modifications of the aggregate debt limit were first enacted in 1917, Congress has approved 102 separate debt limit modifications.
The temporary Band-aid of the extraordinary measures buys Congress some time to meet the United States’ obligations by raising the debt limit. However, Yellen warned that the June date is subject to “considerable uncertainty,” stressing how long such measures can last is a challenge of forecasting its financial obligation payments the federal government must pay and how much revenues the government will bring in months into the future.
“The period of time that extraordinary measures may last is subject to considerable uncertainty, including the challenges of forecasting the payments and receipts of the U.S. Government months into the future,” Yellen wrote.
“I respectfully urge Congress to act promptly to protect the full faith and credit of the United States,” Yellen added.
Yellen last week alerted Congressional leaders that the U.S. is reaching its $31.4 trillion federal statutory debt ceiling, and urged Congress to “act in a timely manner to increase or suspend the debt limit,” noting failing to do so could lead to the nation’s first-ever default on U.S. debt and would cause economic damage around the world.
However, a standoff between the Republican-controlled House and President Biden has either side willing to blink first.
Biden is rejecting the idea of negotiations talks with Republicans, insisting that Congress pass a clean increase to the debt limit so that existing financial commitments can be sustained.
“We should be dealing with the debt ceiling without conditions. It is important. We’re not going to negotiate on this,” White House press secretary Karine Jean-Pierre told reporters Tuesday. “This is just another attempt by congressional Republicans to force unpopular cuts on programs critical to seniors, the middle class, and working families. Congress needs to act and do so quickly. There is no excuse for political brinkmanship.”
According to a senior White House official, the Biden administration will prioritize negotiations for a new bill to increase the debt limit after the mid-April tax deadline.
McCarthy is rejecting Biden’s calls for a clean debt ceiling increase without any conditions attached, calling for negotiations on spending cuts in exchange. The Republican plan calls for balancing the federal budget in 10 years by capping discretionary spending at 2022 levels.
“Let’s change our behavior now. Let’s sit down. [Biden is] the president. We’re the majority in the House. The Democrats are the majority in the Senate. And that’s exactly the way the founders designed Congress to work, find the compromise and find the commonsense compromise that puts us back onto a balanced budget,” McCarthy told reporters Tuesday.
House Ways and Means Committee Chair Jason Smith (R-MO) echoed McCarthy’s call for Biden to begin working with House Republicans in a statement, noting the president should negotiate and “address the debt ceiling in a way that imposes some fiscal sanity” or he carries the prime responsibility of “America’s next debt crisis.”
Any legislation to raise the debt ceiling would need to pass the Senate, which Democrats narrowly control with 51 votes. While Congress nonetheless has a few months to negotiate and find a way to raise the debt limit and the Treasury is able to employ a monthlong process of using the extraordinary measures, the agency will most likely need to take additional steps if a standoff drags on with no results.CongressDebt CeilingDebt LimitEconomic NewsHouse RepublicansJanet YellenPresident BidenRep. Jason SmithSpeaker Kevin McCarthyTreasury Department