The U.S. hit the debt ceiling set by Congress on Thursday, forcing the Treasury Department to begin taking extraordinary steps to ensure the government pays its bills and ramping up pressure on Capitol Hill to avoid a catastrophic default.
The front lines in the high-stakes battle have been identified. Hardline Republicans, who wield huge influence in the House of Representatives because of the party’s slim majority, have demanded that the debt ceiling be tied to spending cuts. The White House countered that there would be no concessions or negotiations on raising the debt ceiling. With the solution to the debt-ceiling drama fully in the hands of lawmakers, fears are growing that partisan brinkmanship could lead to the country’s first-ever debt default — or the danger of coming close to it.
Treasury Secretary Janet Yellen sent a letter to House Speaker Kevin McCarthy on Thursday informing him that outstanding U.S. debt has reached the legal limit of $31.4 trillion and that the agency will take extraordinary steps to avoid a default on the debt, which will have repercussions. The impact on the U.S. economy, global financial stability and many Americans is enormous. She said the measures would expire on June 5.
That buys Congress some time — but how long the extraordinary measures last depends on “considerable uncertainty,” she wrote, emphasizing that forecasting how much the federal government will have to pay its fiscal obligations and how much revenue it will need in a few months is a challenge. challenge into the future.
“I respectfully urge Congress to act swiftly to protect the full integrity and credibility of the United States,” she wrote.
The announcement follows Yellen’s warning last week about the nearness of the debt ceiling and the band-aid of extraordinary measures.
But so far, her letters have failed to spark bipartisan discussion. Instead, Republicans and Democrats have reiterated their hard line over the past week.
On Thursday, National Economic Council Director Brian Dees repeatedly called on Congress to meet America’s obligations by raising the debt ceiling, warning that failure to do so could lead to “economic chaos.”
“It’s about economic stability versus economic chaos,” Dees told Keitlan Collins on “CNN This Morning,” calling it Congress’s “fundamental, fundamental obligation.”
He added that “even the mere specter that the U.S. might not meet its obligations could be damaging to the economy.”
McCarthy will have to tread carefully because any member can ask for a motion to cede the speaker’s seat, one of several concessions he made to secure the top job after 15 ballots earlier this month.
For now, he favors using the debt-ceiling crisis to cut spending and balance the U.S. budget. On Tuesday, McCarthy rejected calls from Democrats to raise the debt ceiling cleanly and without strings attached — something Congress has done repeatedly, including under then-President Donald Trump. The spokesman told reporters on Capitol Hill that the Biden administration should begin negotiations before a possible U.S. default this summer.
“Why don’t we sit down and change this behavior and put ourselves in a better financial position?” McCarthy said.
President Joe Biden and McCarthy have yet to speak on the debt ceiling on Thursday, according to an official familiar with the developments.
On Tuesday, far-right Republican Rep. Andy Biggs went further in a tweet, writing: “We can’t raise the debt ceiling. The currency is devalued. They’ve made the bed, so they have to lie on it.”
The White House on Wednesday slammed the Arizona Republican’s “appalling and unacceptable stance” and again rejected calls for spending cuts as part of a debt-ceiling deal.
White House press secretary Karine Jean-Pierre told reporters that while there are no meetings with congressional leaders to announce, the administration has been “reaching out to all members of both parties” but “will not Any negotiations on the debt ceiling — we’re not going to do that, it’s their constitutional duty.”
The debt ceiling, the maximum amount the federal government can borrow to meet obligations lawmakers and the president have approved, was last raised in December 2021. The debt ceiling, established more than a century ago, has become a way for Congress to limit the growth of debt borrowing — turning it into a political football in recent decades.
Raising the cap would not authorize new spending commitments.
Yellen wrote on Thursday that the Treasury Department will begin using two extraordinary measures that will allow it to continue funding federal government operations for the time being. They are mostly behind-the-scenes accounting operations.
As part of the moratorium on debt issuance, the agency will start selling existing investments and suspend reinvestments in the Civil Service Retirement and Disability Fund and the Postal Service Retirees Health Benefit Fund. In addition, it will suspend 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. The Treasury’s action will reduce the amount of outstanding debt subject to a cap and temporarily allow it to continue paying government bills in full and on time.
Yellen wrote that federal retirees or employees will not be affected and that the funds will all be available once the impasse is over.
As part of his concession, McCarthy pledged to pass a proposal by the end of March telling the Treasury Department which payments should be prioritized if the debt ceiling is breached, Republican Rep. Chip Roy confirmed to CNN last week.
Roy, a Texas Republican who was one of the key players in the standoff for McCarthy’s speakership, warned that the proposal’s outlines were still being worked out, noting that several different versions of the payment were circulating within the House GOP Prioritize the plan.
But choosing to pay for one set of obligations over another could raise legal challenges, as well as political and ethical dilemmas. For example, lawmakers must decide which to pay first—the monthly Social Security payments to tens of millions of elderly and disabled Americans, wages for federal workers and the military, or the U.S. Debt interest, many of them foreigners.