U.S. will begin ‘extraordinary measures’ to stay under debt limit

The Treasury Department said Friday that it will begin taking “extraordinary measures” next week to prevent the U.S. government from breaching the debt ceiling and triggering a default, as lawmakers in Washington prepare for a potentially devastating fiscal showdown as soon as this summer.

In a letter to congressional officials, Treasury Secretary Janet L. Yellen said the administration would act beginning Jan. 19 to repurpose federal funds, or else the U.S. government would not be able to borrow to pay its existing bills – an event, she warned, that could trigger a global economic calamity.

The emergency moves would give Democrats and Republicans until at least early June to adopt a law that would raise or suspend the country’s borrowing cap past its current level of $31.4 trillion. Already, that debate has provoked intense political warfare, as House Republicans threaten to use the critical fiscal deadline as leverage to extract spending cuts from the Biden administration.

Yellen, though, could not provide a precise date when the government would run out of the room provided by the emergency maneuvers, as she used her letter on Friday to highlight the vast consequences of congressional inaction.

“The use of extraordinary measures enables the government to meet its obligations for only a limited amount of time,” Yellen told lawmakers. “It is therefore critical that Congress act in a timely manner to increase or suspend the debt limit. Failure to meet the government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability.”

The United States has never defaulted on its debt in its history. In prior stalemates, economists have warned that a failure to find a compromise could trigger a recession, wiping out billions of dollars in economic growth and eliminating up to 6 million jobs – creating shock waves with worldwide repercussions.

But many leading Republican lawmakers have said in recent days they plan to drive a hard bargain: They have pledged to leverage their new House majority – and the looming debt ceiling deadline – to force the Biden administration to accept sweeping spending cuts that Democrats oppose.

A day before Yellen issued her letter, House Speaker Kevin McCarthy (R-Calif.) said he hoped to “sit down with (Biden) early” to work through a number of outstanding fiscal issues, potentially including the looming need to raise the debt ceiling.

In doing so, McCarthy reaffirmed Republicans’ interest in seeking an agreement that could cap spending in exchange for votes to address the country’s borrowing cap.

“We’ve got to change the way we’re spending money wastefully in this country,” he said.

In response, though, the White House on Friday emphasized its refusal to haggle over the government’s ability to pay its own bills. From the White House podium Friday afternoon, press secretary Karine Jean-Pierre stressed to reporters: “We will not be doing any negotiation over the debt ceiling.”

“It is one of the basic items Congress has to deal with,” she later added, “and it should be done without conditions.”

Liberals have slammed the GOP for even considering using the debt limit to force spending cuts.

“They have the tiniest majority of one house, and they are prepared to use it to get concessions they know are incredibly unpopular,” said Dean Baker, a White House ally and economist co-director of the Center for Economic and Policy Research. “It would be a terrorist attack on the economy.”

Of the extraordinary measures typically invoked by Treasury, the biggest consists of not reinvesting government funds in a retirement program for federal employees and military personnel. Treasury has repeatedly done this measure during prior standoffs, and it makes the fund whole after the impasse has been resolved.

“When the extraordinary measures are implemented, it signifies we are up against the debt limit and the clock is ticking,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center, a nonpartisan think tank.