Treasury Secretary Janet Yellen formally notified Congress last week that the agency must begin taking “emergency measures” after the US reaches its $31.4 trillion debt limit on Thursday.
But the nation has not yet reached the crisis point of a debt ceiling that could weaken financial markets, halt Social Security payments to senior citizens, damage the economy and cause other chaos.
This is what the so-called emergency measures are meant to temporarily avoid. And while they may sound scary, they’re mostly behind-the-scenes accounting maneuvers the Treasury Department can pull to give Congress time to raise or suspend the cap before the U.S. has to default on its debts.
“We’re not in any immediate economic crisis right now,” said Stephen Pressman, a professor of economics at The New School.
But these steps don’t last forever. In the past, they have given lawmakers anywhere from a few weeks to a few months to resolve the borrowing limit. How much revenue the government collects from tax revenues this spring will also be a factor in how long the country can go before default.
Yellen warned lawmakers in a letter last week that the government is unlikely to run out of cash and emergency funds before early June. But, he wrote, there is “considerable uncertainty” around that forecast, and he urged lawmakers to “act in a timely manner.”
Treasury secretaries are authorized by Congress to take several types of emergency measures to prevent default. The secretaries of both the Democratic and Republican administrations have resorted to such steps.
This time, Yellen expects to sell existing investments and suspend reinvestments in the Civil Service Pension and Disability Fund and the Postal Service Retiree Health Benefit Fund. He also suspends the reinvestment of the Federal Employees Retirement Savings Plan’s government securities fund.
These funds are invested in special issue Treasury securities that count against the debt limit. Yellen’s actions would reduce the amount of outstanding debt subject to the limit and temporarily provide the agency with additional capacity to continue funding the federal government’s operations.
No pensioners will be affected and the measures will be implemented once the impasse ends.
“This is actually money the government owes itself,” Pressman said. “The government has promised to return it. The only reason it’s stuck now is the debt ceiling.”
The Ministry of Finance was also forced to take emergency measures in the second half of 2021 to avoid breaching the debt ceiling. Lawmakers eventually agreed in December to raise the limit and avoid a default.
In August of that year, the Treasury published a list of four extraordinary measures it could take. In addition to the action against the three pension funds, the agency said it may suspend the daily reinvestment of Treasury securities held by the Stock Exchange Stabilization Fund.
The fund has a number of uses, including buying or selling foreign currency. Unlike pension funds, the Treasury does not have the authority to reimburse the Exchange Stabilization Fund for lost interest after the impasse is resolved.
The fourth listed maneuver referred to the suspension of the agency’s issuance of treasury securities of a series of state and local governments. While they don’t count against the debt limit, suspending them eliminates the increase in debt that would count against the limit if issued.
The Treasury Department also took emergency measures to include various funds to manage the federal debt in 2011 and 2012 to give Congress time to raise the borrowing limit, according to the Government Accountability Office.