Extraordinary Debt Measures Taken By U.S. Treasury
Treasury Secretary Janet Yellen begins implementing emergency steps to avert a historic national debt default, warning that a default would inflict "irreparable damage to the U.S. economy and the lives of all Americans."
Due to Congress' failure to pass legislation to increase or suspend the debt limit by the deadline of July 30, the Treasury Department began the first steps to start paying off the federal government's debts on Monday morning.
In a letter to Congressional leaders, Treasury Secretary Janet Yellen said that she is initiating what is known as "extraordinary measures" to keep the federal government afloat.
She pleaded with legislators to quickly increase or suspend the debt ceiling, which reached its statutory maximum on August 1.
"I sincerely encourage Congress to act immediately to preserve the United States' full faith and credit," Yellen said in the letter.
According to an estimate by the independent Congressional Budget Office, Treasury would exhaust its special powers somewhere in September or October.
Without congressional action, the U.S. would then default on its debt.
According to the Congressional Budget Office, the exceptional measures may result in a reduction of more than $340 billion in borrowing capability under the current borrowing limit.
These actions, in combination with the Treasury's current cash balance of approximately $459 billion, the CBO said would allow the federal government to stay out of default until October or November, depending on which side of the debate over a new suspension or increase in the debt ceiling prevails.
A federal government default may trigger a chain reaction of cash shortages, affecting bondholders such as individuals, companies, and foreign governments that hold U.S. debt.
Additionally, it may increase interest rates.
Yellen said that the length of "exceptional measures" was unclear due to the pandemic's economic effect on tax revenues.
She emphasized last month that increasing the debt limit does not result in more federal expenditure; instead, it allows the government to repay its debts.
"Failure to fulfill those commitments would be catastrophic for the United States economy and the lives of all Americans," Yellen said in a letter to House Speaker Nancy Pelosi.
President Donald Trump's administration recently suspended the debt limit for two years in July 2019.
However, many Republicans are now opposed to increasing the debt ceiling without guaranteeing Democratic spending cutbacks, as they did when they controlled Congress under President Barack Obama.
Mitch McConnell, the Senate Minority Leader, indicated last month that Democrats would be forced to increase the debt limit on their own.
Treasury Secretary Janet Yellen took further measures Monday to protect the federal government's borrowing capacity in the event of a restored debt ceiling, delaying certain investments in government employee retirement and health benefit programs.
Yellen announced the suspension of investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund that are not urgently needed to pay beneficiaries in a letter to House Speaker Nancy Pelosi and other legislative leaders.
On Saturday, a two-year suspension of the federal debt ceiling ended, restoring the ceiling at its present amount of approximately $28.5 trillion.