The US hit the debt ceiling set by Congress on Thursday, forcing the Treasury Department to begin taking extraordinary measures to keep the government paying its bills and increasing pressure on Capitol Hill to avoid a catastrophic default.
The battle lines for the high stakes fight have already been defined. Radical Republicans, who wield enormous influence in the House because of their party’s slim majority, have demanded that the borrowing limit increase be tied to spending cuts. The White House has responded that it will not make concessions or negotiate raising the debt ceiling. And with the solution to the debt ceiling drama squarely in the hands of lawmakers, fears are growing that partisan recklessness could result in the country defaulting for the first time in history – or coming dangerously close to doing so.
Treasury Secretary Janet Yellen wrote a letter to House Speaker Kevin McCarthy on Thursday, informing him that the country’s outstanding debt is at its statutory limit of $31.4 trillion and that the agency will implement extraordinary measures not to default on its debt, which would have huge consequences on the US economy, global financial stability and many Americans. She said the measures would expire on June 5.
That buys Congress some time — but how long the extraordinary measures can last is subject to “considerable uncertainty,” she wrote, stressing that it is challenging to predict how many financial obligations the federal government must pay and how much it will collect in months. in the future.
“I respectfully ask Congress to act promptly to protect the full faith and credit of the United States,” she wrote.
The announcement follows the notice Yellen sent out last week about the approaching debt limit and the temporary dressing of the extraordinary measures.
But his missive has so far failed to spark a bipartisan discussion. Instead, both Republicans and Democrats reaffirmed their hardline positions last week.
National Economic Council Director Brian Deese on Thursday repeatedly called on Congress to meet America’s obligations by raising the debt limit, warning against the “economic chaos” that could ensue if Congress fails to do so.
“It’s about economic stability versus economic chaos,” Deese told Kaitlan Collins on “CNN This Morning,” calling it a “basic, fundamental obligation” of Congress.
He added: “Even the specter that the United States might not honor its obligations does damage to the economy.”
McCarthy must walk a fine line as any member can file a motion to vacate the speaker’s seat, one of several concessions he made to win the top job after 15 rounds of voting earlier this month.
For now, he is leaning towards using the debt ceiling crisis to cut spending and balance the US budget. On Tuesday, McCarthy rejected Democratic calls for a clean debt ceiling increase without any conditions attached — something Congress has done several times, including under then-President Donald Trump. The speaker told reporters on Capitol Hill that the Biden administration should start negotiating before this summer, when the US could default.
“Why don’t we sit down and change this behavior to put ourselves in a stronger fiscal position?” said McCarthy.
President Joe Biden and McCarthy remained silent on Thursday on the debt limit, according to an official familiar with the dynamics.
Right-wing Republican Representative Andy Biggs went even further in a tweet on Tuesday, writing: “We cannot raise the debt ceiling. The Democrats carelessly spent taxpayer money and devalued our currency. They made the bed, so they must lie in it.
The White House on Wednesday criticized the Arizona Republican’s “impressive and unacceptable position” and once again rejected calls to cut spending as part of a deal on the debt ceiling.
While there were no congressional leadership meetings to announce at this time, White House Press Secretary Karine Jean-Pierre told reporters that the administration is reaching out to “all members, on both sides of the aisle,” but ” there won’t be any negotiation on the debt ceiling – we won’t do that, it’s their constitutional duty.”
The debt ceiling, which is the maximum amount the federal government can borrow to finance obligations already approved by parliamentarians and presidents, was last raised in December 2021. Created more than a century ago, it has become a way of Congress has restricted debt growth – turning it into a political football in recent decades.
Raising the ceiling does not authorize new spending commitments.
The Treasury will begin using two extraordinary measures to allow it to temporarily continue funding federal government operations, Yellen wrote Thursday. They are mostly behind-the-scenes accounting maneuvers.
As part of the debt issuance suspension period, the agency will begin selling existing investments and suspend reinvestments from the Civil Service Retirement and Disability Fund and the Postal Retirement Health Fund. In addition, it will suspend the reinvestment of a government bond fund under the Federal Employees Retirement System Thrift Savings Plan.
These resources are invested in special issue Treasury securities, which are deducted from the debt limit. Treasury actions would reduce the amount of outstanding debt subject to the cap and temporarily allow it to continue paying government bills on time and in full.
No retirees or federal employees will be affected, and funds will be recovered once the shutdown ends, Yellen wrote.
As part of his concessions, McCarthy has pledged to pass a proposal by the end of March telling the Treasury what payments should be prioritized if the debt ceiling is breached, Republican Representative Chip Roy confirmed to CNN last week.
Roy, a Texas Republican who is a major player in the deadlock over McCarthy’s presidency, cautioned that the outlines of the proposal are still being worked out, noting that there are several different versions of a pay-prioritization plan circulating within the House GOP. .
But choosing to pay one set of obligations over another can raise legal challenges as well as political and ethical dilemmas. For example, lawmakers would have to decide what to pay first — monthly Social Security payments to tens of millions of elderly and disabled Americans, salaries of federal and military employees, or the interest on the U.S. debt to a multitude of investors, many of them foreigners.
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