By Ingólfur Stefánsson
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.
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.”