Debt ceiling: What to know about Treasury’s ‘extraordinary measures’ warning


Treasury Secretary Janet Yellen formally notified Congress last week that the agency would have to start taking “extraordinary measures” after the U.S. hit its $31.4 trillion debt ceiling on Thursday.

But the country is not yet at the point of a debt-ceiling crisis that could crash financial markets, suspend Social Security payments to seniors, damage the economy and cause other chaos.

The so-called extraordinary measures are to temporarily avoid this situation. Scary as they sound, they are mostly behind-the-scenes accounting maneuvers that the Treasury Department can take to give Congress time to raise or suspend limits before the U.S. has to default on its debt.

“We don’t have any immediate crisis economically right now,” said New School economics professor Steven Pressman.

But these moves won’t continue indefinitely. In the past, they have given lawmakers weeks to months to address the borrowing cap. How much tax revenue the government receives this spring will also be a factor in determining how long the country can last before defaulting.

Yellen warned lawmakers in a letter last week that the administration was unlikely to run out of cash and extraordinary measures before early June. However, she wrote that the forecast was subject to “considerable uncertainty” and urged lawmakers to act “in a timely manner.”

Congress authorized the Secretary of the Treasury to take a variety of special measures to prevent default. Secretaries in both Democratic and Republican administrations have taken such a step.

This time around, Yellen is expected to sell existing investments and suspend reinvestments in the Civil Service Retirement and Disability Fund and the Postal Service Retirees Health Benefit Fund. In addition, she suspended the reinvestment of government securities funds in the Thrift Savings Plan of the Federal Employees Retirement System.

These funds are invested in specially issued treasury bonds, which count toward the debt limit. Yellen’s actions will reduce the amount of outstanding debt subject to a quota and temporarily provide the agency with additional capacity to continue funding federal government operations.

Retirees will not be affected, and once the standoff is over, the funds will all be in place.

“Effectively, it’s money the government owes itself,” Pressman said. “The government has promised it will pay it back. The only reason it’s in trouble now is the debt ceiling.”

The Treasury will also have to take extraordinary measures in the second half of 2021 to avoid breaching the debt ceiling. Lawmakers finally reached an agreement in December to raise the limit and avoid default.

In August of that year, the Treasury Department released a list of four extraordinary measures it could take. In addition to the measures involving the three pension funds, the agency said it may suspend the daily reinvestment of government bonds held by the Exchange Stabilization Fund.

The fund can be used for a variety of purposes, including buying or selling foreign currencies. Unlike pension funds, the Treasury has no right to repay interest on losses from the Exchange Stabilization Fund after the impasse is resolved.

The fourth move listed involves suspending the agency’s line of state and local government debt. While these don’t count against the debt limit, suspending them removes the build-up of debt that, if issued, would count toward the limit.

The Treasury Department also took special measures in 2011 and 2012 involving various funds to manage the federal debt to allow time for Congress to raise the borrowing limit, according to the Government Accountability Office.

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