The US has reached its $31.4 trillion debt ceiling, the Treasury Department announced on Thursday, with no obvious deal in sight, media reports said.
Axios media network said that if the US government runs on a deficit, the Treasury Department will launch “extraordinary measures” to avoid any default on government securities and bonds.
Yellen in a letter to Congress had said that the Treasury was instituting a “debt issuance suspension period” on Thursday and running through June 5.
In addition, the Treasury will not be able to fulfill certain investments, including to the Civil Service Retirement and Disability Fund.
“As I stated in my January 13 letter, 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 US government, months into the future,” the Treasury Secretary was quoted by the Axios as saying.
“I respectfully urge Congress to act promptly to protect the full faith and credit of the US,” she added.
On the big picture, these measures could be exhausted by early summer, Yellen warned last week. Congress last raised the debt ceiling in December 2021, when Democrats held unified control of Congress — the Senate and the House of Representatives. Now, there is a vertical split in the Congress with Democrats controlling the Senate at 51-49 and Republicans retaking the House of Representatives at 222 to 203.
Senate Minority Leader Mitch McConnell (Republican-Kentucky) said on Thursday that he is “not concerned with a financial crisis”.
“In the end, I think the important thing to remember is that America must never default on its debt. It never has and it never will,” McConnell said.
Senate Majority Leader Chuck Schumer (Democrats-New York), meanwhile, said: “Political brinkmanship with the debt limit would be a massive hit to local economies, American families and would be nothing less than an economic crisis at the hands of the Republicans.”
How the debt ceiling is different from a government shutdown. Government shutdowns come when Congress can’t get appropriations bills passed before the existing ones expire. The most recent shutdown was in 2018-19 under Donald Trump’s presidency, and featured a general stoppage of government services, including furloughs for federal workers.<br> <br>The debt ceiling requires Congress to raise the threshold to pay for already-appropriated spending. Raising the debt limit was generally not a big fight until the 1980s, but there have been repeated standoffs in the years, according to the Congressional Research Service.
A debt limit impasse in 2011 led to the first downgrade in history on the US federal credit rating by credit rating agencies such as the most popular Moody’s.
How will the Treasury Department’s extraordinary measures work in preventing a fiscal crisis, one might ask . Here’s how: The Treasury Department can prioritise payments, including suspending payments to long-term programmes for government employees. It can repay the programmes after the limit is raised.
In her letter to Congress last week, Yellen identified the Civil Service Retirement and Disability Fund, Postal Service Retiree Health Benefits Fund and Government Securities Investment Fund as potential avenues for these extraordinary measures.
Where do the negotiations on the debt ceiling stand now in the Congress? Democrats control the White House and Senate, but they’ll need to strike some sort of deal with House Republicans.
Status in the House: Some GOP members say they’re firmly against any increase to the debt limit. House Speaker Kevin McCarthy said on Tuesday that he wants to “set a budget, set a path to get us to a balanced budget and let’s start paying this debt off,” Axios said.
What’s White House stand? “As President Biden has made it clear, Congress must deal with the debt limit and must do so without conditions,” White House Press Secretary Karine Jean-Pierre said on Tuesday.
With the Congress set to go into a recess over the weekend, it has to deal with an extraordinary situation by Monday when it reconvenes even as the Treasury Department resorts to extraordinary measures in prioritising payments so that payouts on retirement and disability funds of citizens is not jeopardised.