Treasury Announces “Extraordinary Measures” as US Approaches Debt Limit

On January 19, US Treasury Secretary Janet Yellen sent a letter to leaders on Capitol Hill announcing the commencement of “extraordinary measures” to delay the federal government’s default on its debt. On several occasions the Treasury Department used extraordinary measures under existing statutes to change the normal operations of certain government programs in order to generate additional cash to maintain a trajectory below the congressionally established debt ceiling. In the letter, Secretary Yellen announced Treasury would not be able to fully fund the Civil Service Retirement and Disability Fund as well as the Postal Service Retiree Health Benefits Fund. The letter does note that once the debt limit is raised, both funds will be made whole again. Yellen urges congressional leaders to promptly “protect the full faith and credit of the Unites States.”

What happens next: Leaders of the House and Senate are debating options related to the debt ceiling. Speaker of the House Kevin McCarthy would like to see a reduction in federal spending (as a result of negotiations with several House members during the speakership vote) in exchange for raising the debt ceiling. House and Senate Democrats as well as the Biden Administration appear unwilling at this point to concede spending cuts to programs like Social Security, Medicare, and other programs. The “extraordinary measures” the Treasury Department has taken will likely last into the summer which gives congressional leaders a runway to reach a deal, however, in December 2021 (the last time Congress voted to raise the debt ceiling) only one House Republican voted to increase the debt limit, Representative Adam Kinzinger, who is no longer a member of Congress. Negotiations are likely to take time and hold congressional attention away from other issues.

According to a November 2021 report from Moody’s, "If an interest payment was missed as a consequence of the debt limit, in line with our methodology and default definition, we would classify it as an event of default, which would have negative credit and rating implications for the US sovereign, likely resulting in a downgrade."

Click here to read an article on Treasury’s “extraordinary measures” from the Bipartisan Policy Center.
Click here to read a recently updated Congressional Research Service report on the debt limit.
Click here to read an October 2013 release from the Federal Reserve titled, “Possible Macroeconomic Effects of a Temporary Federal Debt Default.”