The United States has officially
reached its statutory debt limit (pdf) of $31.381 trillion on Jan. 19 as was predicted by
Treasury Secretary Janet Yellen in a letter to Congress (pdf) on Jan. 13. The Treasury Department will
now have to implement extraordinary measures to prevent default on the national
debt.
In her letter, Yellen
explained that the debt limit is the total amount of money that the United
States government is authorized to borrow to meet its existing legal
obligations, including Social Security and Medicare benefits, military
salaries, interest on the national debt, tax refunds, and other payments.
“Presidents and Treasury
Secretaries of both parties have made clear that the government must not
default on any obligation of the United States,“ Yellen wrote.
The Treasury Department
may use accounting and budgetary measures known as “extraordinary measures” to
avoid defaulting on the national debt until Congress takes action to raise the
debt limit and allow the government to borrow again. The duration of these
measures depends on the government’s spending levels and is not
permanent. The Treasury Department will only be using two of the four
available extraordinary measures during the initial phase of the debt limit
standoff.
Two Extraordinary Measures
The Treasury anticipates
implementing these two extraordinary measures this month, January 2023.
Firstly, to redeem existing, and suspend new, investments of the Civil Service
Retirement and Disability Fund (CSRDF), and the Postal Service Retiree Health
Benefits Fund (Postal Fund). Secondly, reinvestments of the Government
Securities Investment Fund (G Fund) of the Federal Employees Retirement System
Thrift Savings Plan, will be suspended.
Congress has provided the
Treasury authority to use these measures that, according to Yellen, will
“reduce the amount of outstanding debt subject to the limit and temporarily
provide additional capacity for Treasury to continue financing the operations
of the federal government.” She explained that after the debt limit impasse has
ended, the CSRDF, Postal Fund, and G Fund will be made whole.
Extraordinary measures
have been used when necessary by treasury secretaries over the recent decades.
Yellen warned that the use of extraordinary measures only enables the
government to meet its obligations for a limited time.
“It is therefore critical
that Congress act in a timely manner to increase or suspend the debt
limit. Failure to meet the government’s obligations would cause
irreparable harm to the U.S. economy, the livelihoods of all Americans, and
global financial stability. Indeed, in the past, even threats that the
U.S. government might fail to meet its obligations have caused real harms,
including the only credit rating downgrade in the history of our nation in
2011,” she wrote.
Standoff
The Biden administration
has been firm in expressing that the debt ceiling should be raised without any
additional conditions or stipulations attached.
House Speaker Kevin
McCarthy has urged Democrats to participate in discussions with Republicans on
a financial plan that includes an increase in the debt limit. However, the
White House restated its refusal to engage in such talks and emphasized the
potential for a market-disrupting battle over the debt limit later in the year.
“I would like to sit down
with all the leaders and especially the president and start having discussions.
Who wants to push the nation through some type of threat at the last minute with
the debt ceiling? Nobody wants to do that,” McCarthy said on Tuesday.
White House press
secretary Karine Jean-Pierre, claimed that the president’s economic plan was
indeed working, despite the debt limit being reached, at a press
briefing on
Jan. 18.
“He will not allow
Republicans to take the economy hostage or make … working Americans pay the
price for their schemes to benefit the wealthiest Americans and also special
interests.”
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