Treasury Secretary Janet Yellen formally put Congress on notice last week that the agency will have to start taking “extraordinary measures” after the US reaches its $31.4 trillion debt limit on Thursday.
But the nation is not yet at the debt ceiling crisis point that could tank the financial markets, suspend Social Security payments to senior citizens, hurt the economy and cause other chaos.
That’s what the so-called extraordinary measures are designed to temporarily avoid. And while they might sound dire, they are mainly behind-the-scenes accounting maneuvers that the Treasury Department can take to give Congress time to increase or suspend the limit before the US has to default on its debts.
“We’re not in any immediate crisis right now economically,” said Steven Pressman, economics professor at The New School.
But these moves don’t last indefinitely. In the past, they’ve given lawmakers between a few weeks and several months to address the borrowing cap. How much revenue the government collects in tax revenue this spring will also be a factor in how long the country can go before default.
Yellen warned lawmakers in her letter last week that it is unlikely that the government will exhaust its cash and the extraordinary measures before early June. But, she wrote, there is “considerable uncertainty” around that forecast, and she urged lawmakers to “act in a timely matter.”
Treasury secretaries are authorized by Congress to take several types of extraordinary measures to prevent a default. Secretaries in both Democratic and Republican administrations have taken such steps.
This time around, Yellen anticipates selling existing investments and suspending reinvestments of the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund. Also, she is suspending the reinvestment of a government securities fund of the Federal Employees Retirement System Thrift Savings Plan.
These funds are invested in special-issue Treasury securities, which count against the debt limit. Yellen’s actions would reduce the amount of outstanding debt subject to the limit and temporarily provide the agency with additional capacity to continue financing the federal government’s operations.
No retirees will be affected, and the funds will be made whole once the impasse ends.
“Effectively this is money that the government owes to itself,” Pressman said. “The government has promised it’s going to repay it. The only reason that it’s in a jam now is because of the debt ceiling.”
The Treasury Department also had to take extraordinary measures in the latter half of 2021 to avoid breaching the debt ceiling. Lawmakers eventually reached an agreement that December to raise the limit and avoid a default.
In August of that year, Treasury issued a list of four extraordinary measures that it could take. In addition to the steps involving the three retirement funds, the agency said it may suspend the daily reinvestment of Treasury securities held by the Exchange Stabilization Fund.
The fund has a number of uses, including purchasing or selling foreign currencies. Unlike with the retirement funds, Treasury does not have the authority to reimburse the Exchange Stabilization Fund for lost interest after the impasse is resolved.
The fourth maneuver listed involved suspending the agency’s issuance of State and Local Government Series Treasury securities. While these do not count against the debt limit, suspending them eliminates increases in debt that would count against the limit if issued.
The Treasury Department also took extraordinary measures involving the various funds to manage the federal debt in 2011 and 2012 to give Congress time to raise the borrowing cap, according to the Government Accountability Office.