January 23, 2023

U.S. Treasury Department Hit Federal Debt Limit Last Week

Two weeks ago, U.S. Treasury Secretary Janet Yellen sent a letter to U.S. House Speaker Kevin McCarthy (R-Calif.) stating that the federal government is likely to reach its statutory debt limit at some point during the week of January 16 and, last Thursday, it did just that.

The debt limit, set by Congress, restricts the total amount of money the federal government can legally borrow to support its programs and operations. Currently, that limit is $31.4 trillion.

Secretary Yellen noted the department could take “extraordinary measures” to prevent the U.S. government from defaulting on its debt obligations while members of Congress debate whether to increase the debt limit. (Congress is the only federal body that can raise the federal borrowing limit.) Those measures should hold off default until about early June 2023, Secretary Yellen estimated.

The so-called “extraordinary measures” include temporarily suspending new investments of the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund, as well as suspending reinvestment of the Government Securities Investment Fund of the Federal Employees Retirement System Thrift Savings Plan.

As The Bipartisan Policy Center has explained, once these “extraordinary measures” and the Treasury Department’s cash reserves run out, the federal government will no longer be able to meet all of its obligations in full and on time. “This unprecedented event would likely have catastrophic consequences for financial markets and Americans throughout the country,” the Bipartisan Policy Center concluded.

Speaker McCarthy and House Republicans have said any action to address the debt ceiling must be tied to spending cuts in order to be approved by a majority of the House. Proposals for significant cuts are unlikely to gain approval in the Senate, however, since Democrats still hold control the upper chamber of Congress.

Stay tuned to Connecting the Dots, which will provide updates as this debate gets started in the House and Senate.

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