(C) Common Dreams
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How ‘Extraordinary Measures’ Can Postpone a Debt Limit Disaster [1]
['Alan Rappeport']
Date: 2023-01-18
While the term suggests that such tools are intended to be used on rare occasions, Treasury secretaries from both parties have recently had to rely on such accounting maneuvers to allow the government to continue its operations for limited periods.
What are extraordinary measures?
When the country comes close to — or hits — the statutory debt limit, the Treasury secretary can find ways to shift money around government accounts to remain under the borrowing cap, essentially buying time for Congress to raise the cap.
That includes seeking out ways to reduce what counts against the debt limit, such as suspending certain types of investments in savings plans for government workers and health plans for retired postal workers. The Treasury can also temporarily move money between government agencies and departments to make payments as they come due. And it can suspend the daily reinvestment of securities held by the Treasury’s Exchange Stabilization Fund, a bucket of money that can buy and sell currencies and provide financing to foreign governments.
Understand the U.S. Debt Ceiling Card 1 of 5 What is the debt ceiling? The debt ceiling, also called the debt limit, is a cap on the total amount of money that the federal government is authorized to borrow via U.S. Treasury securities, such as bills and savings bonds, to fulfill its financial obligations. Because the United States runs budget deficits, it must borrow huge sums of money to pay its bills. The limit has been hit. What now? America hit its technical debt limit on Jan. 19. The Treasury Department will now begin using “extraordinary measures” to continue paying the government’s obligations. These measures are essentially fiscal accounting tools that curb certain government investments so that the bills continue to be paid. Those options could be exhausted by June. What is at stake? Once the government exhausts its extraordinary measures and runs out of cash, it would be unable to issue new debt and pay its bills. The government could wind up defaulting on its debt if it is unable to make required payments to its bondholders. Such a scenario would be economically devastating and could plunge the globe into a financial crisis. Can the government do anything to forestall disaster? There is no official playbook for what Washington can do. But options do exist. The Treasury could try to prioritize payments, such as paying bondholders first. If the United States does default on its debt, which would rattle the markets, the Federal Reserve could theoretically step in to buy some of those Treasury bonds. Why is there a limit on U.S. borrowing? According to the Constitution, Congress must authorize borrowing. The debt limit was instituted in the early 20th century so that the Treasury would not need to ask for permission each time it had to issue debt to pay bills.
After the debt limit impasse ends, programs whose investments were suspended are supposed to be “made whole.”
In the event that the statutory debt limit is breached, the Treasury Department broadly looks for ways to reduce different types of debt that the government incurs so that it can continue to pay its obligations on time. This allows the Treasury Department to reinforce its cash reserves without having to issue new debt.
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[1] Url:
https://www.nytimes.com/2023/01/18/business/economy/us-debt-limit-extraordinary-measures.html
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