US Hits Debt Limit
On Thursday, the United States reached its debt ceiling, which is the maximum sum of money the federal government is permitted to borrow. However, politicians are still arguing about how to increase the ceiling. To ensure that the nation can continue paying its debts, the Treasury Department is currently taking what it refers to as “exceptional measures.”
Even while “exceptional measures” may sound concerning, experts claim that the Treasury has a history of utilising them, and as a result, the adjustments won’t likely have an immediate effect on Americans’ daily lives. They essentially serve as accounting instruments that provide the government the ability to temporarily continue funding routine operations and aid in buying Congress more time to come to an agreement.
Treasury Secretary Janet Yellen stated in a letter to congressional leadership that the Treasury Department began to use some of its extraordinary measures after the current debt ceiling of $31.4 trillion was anticipated to be reached on Thursday, but she added that the duration of the measures was “considerably uncertain.”
Although this means the nation would be able to avoid defaulting on its debt for the time being, the implications would be severe if that did finally happen for the first time. That would not only be detrimental to Americans who depend on public assistance such as Social Security payments, but it would also wreck havoc on the stock market and hurt the overall economy.
Accounting tricks are essentially what extraordinary measures are. For instance, after the debt ceiling is increased or suspended, the Treasury Department would resume investments in some government funds.
According to Rachel Snyderman, a senior associate director of business and economic policy at the Bipartisan Policy Center, by temporarily reducing the amount of debt that some funds hold, the Treasury would enable the government to remain under the borrowing cap and carry on with regular operations for a longer period of time.
A “debt issuance suspension period” would start on Thursday and extend until June 5, according to Yellen’s letter. The Civil Service Retirement and Disability Fund, which offers benefits to public employees, will begin redeeming current assets, and the Postal Service Retiree Health Benefits Fund will also stop accepting new contributions.
Yellen predicted that the Treasury would begin restricting reinvestment of the Government Securities Investment Fund of the Federal Employees Retirement System Thrift Savings Plan this month in a letter she wrote last week.
Other alternatives include stopping the issuing of State and Local Government Series securities or stopping the daily reinvestment of assets held by the Exchange Stabilization Fund, which is used to buy or sell foreign currencies. According to Yellen, it is doubtful that the Treasury’s cash and measures will run out before the beginning of June.
The steps, according to Synderman, are a “temporary remedy” that Americans shouldn’t notice right away. She cited the fact that by implementing the measures, the Treasury would not be “dipping into the hard-earned savings of federal employees,” and that it would eventually refund the cash and any interest that would have been generated otherwise.
The Treasury stated that as long as the nation had not used up its exceptional measures, payments would be provided for civil service benefits, postal retiree health benefits, and payments from the retirement fund for federal employees. The money would be “made whole” and beneficiaries would not be impacted until a compromise on the debt ceiling was achieved.
Regardless of whether political party controls the White House or either chamber of Congress, Treasury secretaries have a history of implementing these steps in recent years, according to Snyderman. Before Congress lifted the debt ceiling, the Treasury last used these strategies in August 2021. According to a schedule created by the Bipartisan Policy Center, they were also utilized in March 2019, December 2017, and March 2017. After being officially approved in October 1986, the measures were initially put into operation in September 1985.
But according to Snyderman, the Treasury cannot depend on these activities permanently since money might be fully withdrawn from investments. A fund can no longer be utilized to increase borrowing capacity once it reaches zero.
The typical American won’t notice a shift right once extreme steps begin, according to Snyderman. Extraordinary steps indicate that time is running out and that the economy will alter as time goes on.
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