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Treasury Scrambles as Debt Ceiling Looms

Government

Treasury Secretary Janet Yellen | Image by BBC/Getty Images

To ensure that the U.S. does not default on its debt payments, which could lead to an economic crisis, the Treasury Department says it will begin taking “extraordinary measures.”

Treasury Secretary Janet Yellen asked Congress to raise the debt ceiling in a letter sent to House Speaker Kevin McCarthy (R-CA) on Friday.

“It is therefore critical that Congress act in a timely manner to increase or suspend the debt limit,” Yellen wrote in the letter. “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.”

Yellen also said the government’s borrowing limit, about $31.4 trillion, would be reached on Thursday.

The department says “extraordinary measures” entail repurposing federal funding to continue servicing the government’s debts and prevent a default.

“While Treasury is not currently able to provide an estimate of how long extraordinary measures will enable us to continue to pay the government’s obligations, it is unlikely that cash and extraordinary measures will be exhausted before early June,” Yellen wrote.

The action is being taken to pay for costs the government has already incurred, not to cover any pending new spending. Some conservatives on Capitol Hill have attempted but failed to use previous debt ceiling votes as leverage to demand spending reductions.

The letter is a sneak peek at what is anticipated to be a heated showdown in Washington over the next few months. In the past, Congress has often voted to raise the debt ceiling to ensure that the U.S. can pay its debts.

But some House Republicans, now in the majority, have stated they will not support another debt limit increase unless Democrats commit to decreased spending. McCarthy gave a brief preview of the forthcoming battle.

“I remember when Trump was president and Nancy Pelosi was speaker; there became a debt ceiling agreement, and it was a cap agreement for two years to cap the spending,” McCarthy said. “If you have a child and you give them a credit card, and they spend the limit, so you increase the limit again and again and again, when does it end? We’ve got to change the way we are spending money wastefully in this country.”

The White House declared on Friday afternoon that it would not discuss any budget cuts to raise the debt ceiling. The ceiling was increased three times while Donald Trump was president, according to Senate Majority Leader Chuck Schumer (D-NY).

“A default forced by extreme MAGA Republicans could plunge us into a deep recession, spike inflation, and lead to even higher costs for working families on everything from mortgages and car loans to credit card interest rates,” wrote Schumer in his response to the Treasury letter.

Yellen made a similar declaration in July 2021, when she warned Congress that her department would need to start “extraordinary measures” if lawmakers didn’t raise the debt ceiling by August of that year, CNBC reported.

In a letter to then-House Speaker Nancy Pelosi, Yellen said the Treasury Department would soon suspend the sale of state and local bonds to avoid the creation of new debt over the authorized limit.

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