(RepublicanInformer.com)- With Congress failing to reach an agreement on the federal debt ceiling, the Treasury Department took “extraordinary measures” to prevent catastrophe.
On Monday, the Treasury began emergency steps to conserve cash so the country doesn’t bust through the federal borrowing limit. At the end of July, a two-year suspension of the debt ceiling expired.
The measures the Treasury is taking will allow it to pay the bills for the federal government without having to float any new debt over the next few months. At that point, it will be up to Congress to either suspend the borrowing limit or raise it.
If they don’t, the U.S. will be at threat of defaulting on its various debt obligations.
The debt ceiling acts as a preventative measure that blocks the Treasury from issuing any new bonds that would help fund activities of the federal government once a particular level of debt has been reached.
In August 2019, the debt level hit $22 trillion. It had been suspended until the end of July of this year.
Any new debt limit will have to include the additional borrowing the federal government did since the summer of 2019. The new cap is estimated to end up a little more than $28.5 trillion, according to the Congressional Budget Office.
On Monday, the Treasury sent notice to Congress that it had started its emergency measures. Regular payments to various retirement funds will be one of the things that will stop for now.
As Janet Yellen, the Treasury Secretary, told House Speaker Nancy Pelosi:
“I will be unable to fully invest the portion of the Civil Service Retirement and Disability Fund (CSRDF) not immediately required to pay beneficiaries, and that a ‘debt issuance suspension period’ will begin on Monday, August 2, 2021, and last through Thursday, September 30, 2021.
“I respectfully urge Congress to protect the full faith and credit of the United States by acting as soon as possible.”
In the past, Yellen told Pelosi that the trillions of dollars the federal government has spent recently, including for the multiple COVID-19 relief packages, make it hard for the Treasury to determine how long these “extraordinary measures” will be able to be sustained.
The U.S. government has never defaulted on any of its obligations. But, economists say if it does so, it could spike interest rates overnight and have a disastrous effect on the overall economy.
As Karen Dynan, an economics professor at Harvard University, told CNBC last week:
“The government needs to have funds, for example, to pay interest on its debt, and if it were to stop paying interest, that could be extremely unsettling for financial markets.”
The money is used to send checks to Social Security recipients and to pay the government’s workers. As Dynan, who worked in the Treasury Department during the Obama administration, said:
“People depend on that money and could suffer a lot of hardship if they don’t get it as scheduled.”