Treasury Secretary Janet Yellen formally notified Congress last week that the agency will have to start taking “extraordinary action” after the United States hits its $31.4 trillion debt limit on Thursday.
But the nation is not yet at the crisis point of the debt ceiling that could plunge financial markets, cut off Social Security payments to the elderly, hurt the economy and cause other chaos.
That is what the so-called extraordinary measures are designed to temporarily prevent. And while they may sound dire, they are mostly behind-the-scenes accounting maneuvers that the Treasury Department can take to give Congress time to raise or suspend the limit before the US has to default on its debts.
“We’re not in any immediate economic crisis right now,” said Steven Pressman, an economics professor at The New School.
But these movements do not last indefinitely. In the past, they have given lawmakers anywhere from a few weeks to several months to address the debt limit. How much revenue the government collects in tax revenue this spring will also be a factor in how long the country can go before defaulting.
Yellen warned lawmakers in her letter last week that the government is unlikely to run out of cash and extraordinary measures before early June. But, he wrote, there is “considerable uncertainty” surrounding that forecast, and he urged lawmakers to “act in a timely manner.”
Treasury secretaries are authorized by Congress to take various types of extraordinary measures to prevent a default. The secretaries of the Democratic and Republican administrations have taken such steps.
This time, Yellen plans to sell existing investments and suspend rollovers from the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefit Fund. In addition, she is suspending the reinvestment of a government securities fund from the Federal Employees Retirement System Savings Plan.
These funds are invested in special issue Treasury securities, which count against the borrowing limit. Yellen’s actions would reduce the amount of outstanding debt subject to the cap and temporarily provide the agency with additional capacity to continue funding the operations of the federal government.
No retirees will be affected and the funds will be completed once the doldrums end.
“In effect, this is money that the government owes itself,” Pressman said. “The government has promised that it will return it. The only reason it’s in trouble now is because of the debt ceiling.”
The Treasury Department also had to take extraordinary measures in the second half of 2021 to avoid breaking the debt ceiling. Lawmakers finally reached an agreement in December to raise the limit and avoid a default.
In August of that year, the Treasury issued a list of four extraordinary measures it could take. In addition to the efforts that involve the three retirement funds, the agency said that it may suspend the daily reinvestment of Treasury securities held by the Exchange Stabilization Fund.
The fund has various uses, including buying or selling currencies. Unlike the retirement funds, the Treasury does not have the authority to reimburse the Exchange Stabilization Fund for lost interest after the impasse is resolved.
The fourth mentioned maneuver consisted of suspending the issuance of Treasury securities of the State and Local Governments Series by the agency. While these do not count against the debt limit, suspending them removes the debt increases that would count against the limit if they were issued.
The Treasury Department also took extraordinary measures involving various funds to manage federal debt in 2011 and 2012 to give Congress time to raise the debt limit, according to the Government Accountability Office.