- Treasury is starting to pay off the government’s bills because Congress missed an important deadline.
- Lawmakers failed to raise or suspend the debt ceiling, largely due to GOP resistance.
- Treasury is using “extraordinary measures” to pay its bills, but Congress must act before the fall.
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The Treasury Department took initial steps to start paying off the federal government’s bills on Monday because Congress missed a July 30 deadline to either raise or suspend the debt ceiling.
In a letter to Congressional leaders, Treasury Secretary Janet Yellen said she’s starting what are known as “extraordinary measures” to keep the federal government afloat. She urged lawmakers to take swift action to either raise or suspend the debt ceiling, which hit its statutory limit on August 1.
“I respectfully urge Congress to protect the full faith and credit of the United States by acting as soon as possible,” Yellen said in the letter. The nonpartisan Congressional Budget Office said in an analysis that Treasury would exhaust its special powers sometime in September or October. Absent action from Congress, the US would then default on its loans.
A default from the federal government could precipitate a chain reaction of cash shortages that could hit bondholders including the people, businesses, and foreign governments who hold US debt. It could also lead to a spike in interest rates.
Yellen said the duration of “extraordinary measures” was uncertain because of the economic impact from the pandemic on tax receipts. Last month, she noted that raising the debt ceiling does not prompt more federal spending, it only permits the government to pay back what it owes.
“Failure to meet those obligations would cause irreparable harm to the U.S. economy and the livelihoods of all Americans,” Yellen wrote in a letter to House Speaker Nancy Pelosi.
Congress last suspended the debt ceiling for two years under President Donald Trump in July 2019. But now, many Republicans are balking at raising the debt limit without ensuring spending cuts from Democrats, as they similarly did when they controlled Congress under President Barack Obama. Senate Minority Leader Mitch McConnell suggested last month Democrats would have to raise the debt ceiling on their own.