Treasury Department will begin taking special cash-preservation measures on Monday to prevent the U.S. government from defaulting on its debt
- Congress missed a key deadline to raise or suspend the debt ceiling Monday
- Treasury Secretary Janet Yellen warned the top four lawmakers in Congress that her department would be forced into ‘extraordinary measures’ if it was not met
- She said in late July that failure to meet the deadline would cause ‘irreparable harm’ to the US economy and the livelihoods of Americans
- The Treasury is projected to run out of cash to pay its debts sometime in fall
- Mitch McConnell said Republicans are staunchly opposed to raising the limit
- Congress almost missed the debt ceiling deadline once before in 2011
The US Treasury is being forced into ‘extraordinary measures’ on Monday after Congress failed to meet a key deadline to raise or suspend the debt ceiling.
The department is taking special cash-preservation measures to prevent the federal government from defaulting on its debts and running out of cash.
Currently the US debt ceiling is roughly $28.5 trillion, which is the legal limit on the amount of debt the government can accrue. It applies to almost all federal debt including more than $22 trillion held by the public and over $6 trillion the government owes itself as a result of borrowing from accounts like the Social Security and Medicare trust funds.
Congress, which is responsible for setting the federal debt limits for the Treasury to act on, voted in 2019 to suspend the $22 trillion debt ceiling until 2021.
The Treasury Department is being forced to invoke ’emergency measures’ after Congress missed the deadline to raise or suspend the debt ceiling (pictured: Treasury Secretary Janet Yellen on July 11)
It was reinstated automatically at the beginning of August to include the last two years’ debts.
‘Increasing or suspending the debt limit does not increase government spending, nor does it authorize spending for future budget proposals; it simply allows Treasury to pay for previously enacted expenditures,’ Secretary Janet Yellen wrote in identical letters sent to the four top lawmakers in Congress and heads of the House Ways and Means and Senate Finance committees.
She warned in the late July letters that not meeting the deadline could bring on a financial crisis.
‘Failure to meet those obligations would cause irreparable harm to the US economy and the livelihoods of all Americans.’
Yellen also warned that ‘cash and extraordinary measures’ could be depleted as early as September when Congress returns from recess, forcing the government to miss payments to veterans, bond holders and Social Security recipients among others.
Yellen sent letters to the four top lawmakers in Congress in late July warning them of ‘irreparable harm’ to the economy if the deadline was not met
The last time Congress almost missed the debt ceiling deadline, one agency downgraded the US’s credit standing for the first time (pictured: US Treasury Department in DC)
The first graph shows the US debt ceiling increase over the years until it was suspended in 2019 for two years while the second shows US GDP over the same time period
Senate Minority Leader Mitch McConnell vowed no Republicans would vote to raise the debt ceiling in an interview with Punchbowl News, instead warning Democrats they would need to put it in their multi-trillion dollar reconciliation package.
‘I can’t imagine a single Republican in this environment that we’re in now – this free-for-all for taxes and spending – to vote to raise the debt limit,’ McConnell told the outlet.
However the Treasury can’t give an exact timeline for when the extraordinary cash preservation measures run out, citing the economic uncertainty brought on by the coronavirus pandemic.
The last time Congress nearly missed the debt ceiling deadline in 2011, the country’s credit rating was downgraded for the first time by credit rating and research agency Standard & Poor’s.