As lawmakers gear up for a fight over whether to raise the U.S. debt limit, Treasury Secretary Janet Yellen has warned that the country will reach its borrowing cap by Thursday.
But while Yellen gave the warning to lawmakers that the technical borrowing cap of nearly $31.4 trillion will be reached this week, she also said that the department will take “extraordinary measures” to ensure that the government pays its bills. The measures will fend off what analysts say would be a disastrous U.S. default on its debt.
What are these accounting maneuvers that Yellen said the Treasury will resort to in its bid to delay a U.S. debt default?
What Yellen has already said she will do
Treasury Secretary Janet Yellen in Herndon, Va., Oct. 21, 2022. (AP Photo/Cliff Owen, File)
Yellen said in her letter to Congress last week that she plans to take a number of steps to allow lawmakers time to find an agreement on a deal. She plans to redeem existing and suspend new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund. She also said that she will suspend reinvestment of the Government Securities Investment Fund of the Federal Employees Retirement System Thrift Savings Plan.
The actions sound complex, but it really boils down to accounting moves to reduce the financial burden on the government. These two actions include selling investments to raise cash for the government and also not reinvesting some retirement funds to hold the cash and not generate new debt. Yellen highlighted that previous Treasury leaders have taken a similar course to find temporary breathing room.
But the reprieve is just that — temporary. Yellen has predicted that such measures will get the country to sometime in June, when it will again be up against the inability to take on new debt. So what else can the government do to buy valuable time?
Moving money around
Like the actions that Yellen has already announced, the government can undertake further accounting measures to create room in the budget to continue to function.
This includes the ability of the government to move money around different federal agencies, making payments on bills as necessary. It can also take further action similar to the two courses that Yellen has already chosen, suspending certain investments and cashing out on current investments to raise money.
If lawmakers reach an impasse in negotiations about raising the debt limit, the Treasury and the federal government will be faced with an unprecedented dilemma, staring down the barrel of a U.S. debt default.
The unknown
If lawmakers are unable to raise or suspend the debt ceiling, the U.S. will be facing its first-ever default, and because this has never happened before, there is little understanding of how the executive and legislative branches will navigate such a situation.
Every time the U.S. has been faced with hitting its debt ceiling, lawmakers have found a solution, even if it meant the Treasury took similar “extraordinary measures” to buy them some time to negotiate. Economists have warned that a potential default would be disastrous for both the American and world economies.