US hits debt ceiling, leaving Treasury a few months of runway with 'extraordinary measures'
The Treasury Department is embarking upon “extraordinary measures” to keep the United States temporarily from defaulting after the federal debt ceiling was reinstated and immediately became binding Sunday.
A two-year congressional suspension of the debt ceiling expired Sunday, making the level of federal debt, more than $28 trillion, the new ceiling. The Treasury is expected immediately to take emergency cash-conservation steps to pay incoming bills without issuing debt over the limit. On Friday it had already begun preparing for the deadline when it stopped selling State and Local Government Series securities.
The debt limit was paused at $22 trillion in 2019 — national debt hit $22 trillion in April of that year, less than a year after it hit $21 trillion. Since then, federal spending grew massively over the course of the COVID-19 pandemic.
Congress must act to raise or suspend the cap, or the U.S. could fall behind on its obligations or fail to make a payment on the debt, a scenario that would have catastrophic effects on global financial markets. Raising the ceiling has resulted in tension in the past, as the party out of power has often demanded concessions for agreeing on an increase.
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John Rosen, an adjunct economics professor at the University of New Haven, told the Washington Examiner that in the meantime the Treasury will be taking steps to free up cash to pay incoming bills, such as redeeming investments in federal pension plans and essentially shedding assets to generate cash until Congress acts. Such fiscal maneuvers are referred to as "extraordinary measures."
In a letter to congressional leadership, Treasury Secretary Janet Yellen implored lawmakers to act and pointed out that no previous U.S. president or treasury secretary has ever entertained the notion of allowing the country to default on any obligation.
“The current level of debt reflects the cumulative effect of all prior spending and tax decisions, which have been made by administrations and congresses of both parties over time,” she wrote. “Failure to meet those obligations would cause irreparable harm to the U.S. economy and the livelihoods of all Americans."
“Even the threat of failing to meet those obligations has caused detrimental impacts in the past, including the sole credit rating downgrade in the history of the nation in 2011,” she added, highlighting when the U.S. was downgraded from AAA by AA+ by Standard and & Poor’s for the first and only time.
Adding to the drama of the moment, Congress has been closely divided, and the 50-50 split Senate will need to have 10 Republicans join with all of the Democrats in order for the ceiling to be increased or paused by overcoming the filibuster, although Democrats could overcome that through budget reconciliation where only a simple majority (including Vice President Kamala Harris’s vote) is needed.
Rosen said that he is “quite certain” that Congress will find a resolution to the situation within the next two or three months because the implications of a genuine U.S. default would be “calamitous” for banks and the world financial system.
Joel Griffith, a research fellow at the conservative Heritage Foundation, said that he thinks that Congress should use the moment to make the “difficult decisions” that need to be made.
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“Congress should be using this opportunity to finally impose some spending controls,” he told the Washington Examiner. “We are mortgaging future generations, we are risking economic slowdowns and rising inflation because we have not gotten federal spending under control.”
Griffith said that he is not too confident that this time around it will be any different. He pointed out that several Republicans have joined with Democrats to pass a pricey infrastructure spending package.
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Tags: News, Federal Debt, Debt Ceiling, National Debt, Congress, Treasury Department, Biden Administration
Original Author: Zachary Halaschak
Original Location: US hits debt ceiling, leaving Treasury a few months of runway with 'extraordinary measures'