NATIONAL NEWS

Treasury Dept. now taking ‘extraordinary measures’ on debt

Jan 19, 2023, 8:35 AM
FILE: U.S. Treasury (Photo by Chip Somodevilla/Getty Images)...
FILE: U.S. Treasury (Photo by Chip Somodevilla/Getty Images)
(Photo by Chip Somodevilla/Getty Images)

WASHINGTON (AP) — The countdown toward a possible U.S. government default is in the offing, and frictions between President Joe Biden and House Republicans are raising alarms about whether the United States can sidestep a potential economic crisis.

The Treasury Department on Thursday said in a letter to congressional leaders it has started taking “extraordinary measures” as the government has brushed up against its legal borrowing capacity of $38.381 trillion. An artificially imposed cap, the debt ceiling has been increased roughly 80 times since the 1960s.

Markets so far remain calm, given that the government can temporarily rely on accounting tweaks to stay open and any threats to the economy would be several months away. Even many worried analysts assume there will be a deal.

But this particular moment seems more fraught than past brushes with the debt limit because of the broad differences between Biden and new House Speaker Kevin McCarthy, who presides over a restive Republican caucus.

Those differences increase the risk that the government could default on its obligations for political reasons. That could rattle financial markets and plunge the world’s largest economy into a wholly preventable recession.

Biden and McCarthy, R-Calif., have several months to reach agreement as the Treasury Department imposes “extraordinary measures” to keep the government operating until at least June. But years of intensifying partisan hostility have led to a conflicting set of demands that jeopardize the ability of the lawmakers to work together on a basic duty.

Biden insists on a “clean” increase to the debt limit so that existing financial commitments can be sustained and is refusing to even start talks with Republicans. McCarthy is calling for negotiations that he believes will lead to spending cuts. It’s unclear how much he wants to trim and whether fellow Republicans would support any deal after a testy start to the new Congress that required 15 rounds of voting to elect McCarthy as speaker.

Asked twice on Wednesday if there was evidence that House Republicans can ensure that the government would avert a default, White House press secretary Karine Jean-Pierre said it’s their “constitutional responsibility” to protect the full faith and credit of the United States. She did not say whether the White House saw signs at this stage that a default was off the table.

“We’re just not going to negotiate that,” Jean-Pierre said. “They should feel the responsibility.”

McCarthy said Biden needs to recognize the political realities that come with a divided government. The speaker equates the debt ceiling to a credit card limit and calls for a level of fiscal restraint that did not occur under President Donald Trump, a Republican who in 2019 signed a bipartisan suspension of the debt ceiling.

“Why create a crisis over this?” McCarthy said this week. “I mean, we’ve got a Republican House, a Democratic Senate. We’ve got the president there. I think it’s arrogance to say, ‘Oh, we’re not going to negotiate about pretty much anything’ and especially when it comes to funding.”

Any deal would need to pass the Democratic-run Senate. Many Democratic lawmakers are skeptical about the ability to work with Republicans aligned with the “Make America Great Again” movement started by Trump. The MAGA movement has claimed that the 2020 election lost by Trump was rigged, a falsehood that contributed to the Jan. 6, 2021, insurrection at the U.S. Capitol.

“There should be no political brinkmanship with the debt limit,” said Senate Majority Leader Chuck Schumer, D-N.Y. “It’s reckless for Speaker McCarthy and MAGA Republicans to try and use the full faith and credit of the United States as a political bargaining chip.”

In order to keep the government open, the Treasury Department on Thursday was making a series of accounting maneuvers that would put a hold on contributions and investment redemptions for government workers’ retirement and health care funds, giving the government enough financial space to handle its day-to-day expenses until roughly June.

What happens if these measures are exhausted without a debt limit deal is unknown. A prolonged default could be devastating, with crashing markets and panic-driven layoffs if confidence evaporated in a cornerstone of the global economy, the U.S. Treasury note.

Analysts at Bank of America cautioned in a report last week that “there is a high degree of uncertainty about the speed and magnitude of the damage the U.S. economy would incur.”

The underlying challenge is that the government would have to balance its books on a daily basis if it lacks the ability to issue debt. If the government cannot issue debt, it would have to impose cuts equal in size on an annual basis to 5% of the total U.S. economy. Analysts say their baseline case is that the U.S. avoids default.

Still, if past debt ceiling showdowns such as the one that occurred in 2011 are any guide, Washington may be in a nervous state of suspended animation with little progress until the “X-date,” the deadline when the Treasury’s “extraordinary measures” are depleted.

Unlike the 2011 showdown, the Federal Reserve is actively raising interest rates to lower inflation and is rolling off its own holdings of U.S. debt, meaning that recession fears are already elevated among consumers, businesses and investors.

Biden administration officials have said they will not prioritize payments to bondholders if the country passes the “X-date” without an agreement. Over the years, officials have studied this emergency option, which Treasury officials across administration have said is unworkable because of the government’s payments system.

“To some extent, the ‘extraordinary measures’ are the backup plan, and once those are exhausted the next step is a major question mark,” economists at Wells Fargo wrote in a Thursday analysis.

___

AP writer Lisa Mascaro contributed to this story.

KSL 5 TV Live

Top Stories

National News

President Joe Biden delivers the State of the Union address to a joint session of Congress at the C...
Zeke Miller, Seung Min Kim and Lisa Mascaro, Associated Press

Biden in State of Union exhorts Congress: ‘Finish the job’

President Joe Biden has exhorted Republicans in his State of the Union address to work with him to “finish the job” of rebuilding the economy and uniting the nation.
13 hours ago
Rep. George Santos, R-N.Y., Rep. Matt Gaetz, R-Fla., and other Republicans gather in the House Cham...
Lisa Mascaro and Mary Clare Jalonick, Associated Press

GOP on GOP: Romney scolds Santos, ‘You don’t belong here’

Congressman George Santos' presence at the center aisle for Tuesday night's speech was met with a stern rebuke from a fellow Republican, Sen. Mitt Romney of Utah.
13 hours ago
SANTA FE, NEW MEXICO - OCTOBER 22: A general view shows a locked gate at the entrance to the Bonanz...
Associated Press

Alec Baldwin wants prosecutor in on-set death case dropped

Defense attorneys for actor Alec Baldwin are seeking to disqualify the special prosecutor in the case against him stemming from the fatal shooting of a cinematographer on a New Mexico film set.
13 hours ago
FILE: Powerball and Mega Millions lottery tickets are displayed on January 3, 2018 in San Anselmo, ...
Associated Press

Lucky player in Seattle suburb wins $754.6M Powerball prize

A single winning ticket for a $754.6 million Powerball jackpot was sold at a department store in a Seattle suburb, Washington state lottery officials said Tuesday.
2 days ago
(From left) Emma Stone and Ryan Gosling are pictured here in 2016's "La La Land." (Dale Robinette/L...
Alli Rosenbloom

Musical adaptation of ‘La La Land’ is dancing its way to Broadway

Get your dancing shoes ready, because "La La Land" is coming to Broadway.
2 days ago
Sailors assigned to Explosive Ordnance Disposal Group 2 recover debris from a suspected Chinese sur...
Haley Britzky

US Navy releases photos of Chinese spy balloon recovery effort

The U.S. Navy released photos Tuesday of its recovery effort of a suspected Chinese spy balloon, which U.S. fighter jets shot down over the Atlantic Ocean on Saturday.
2 days ago

Sponsored Articles

vintage photo of lighting showroom featuring chandeliers, lamps, wall lights and mirrors...
Lighting Design

History of Lighting Design | Over 25 Years of Providing Utah With the Latest Trends and Styles

Read about the history of Lighting Design, a family-owned and operated business that paved the way for the lighting industry in Utah.
Fiber Optical cables connected to an optic ports and Network cables connected to ethernet ports...
Brian Huston, CE and Anthony Perkins, BICSI

Why Every Business Needs a Structured Cabling System

A structured cabling system benefits businesses by giving you faster processing speeds and making your network more efficient and reliable.
notebook with password notes highlighted...
PC Laptops

How to Create Strong Passwords You Can Actually Remember

Learn how you can create strong passwords that are actually easy to remember! In a short time you can create new ones in seconds.
house with for rent sign posted...
Chase Harrington, president and COO of Entrata

Top 5 Reasons You May Want to Consider Apartment Life Over Owning a Home

There are many benefits of renting that can be overshadowed by the allure of buying a home. Here are five reasons why renting might be right for you.
Festive kitchen in Christmas decorations. Christmas dining room....
Lighting Design

6 Holiday Decor Trends to Try in 2022

We've rounded out the top 6 holiday decor trends for 2022 so you can be ahead of the game before you start shopping. 
Happy diverse college or university students are having fun on their graduation day...
BYU MBA at the Marriott School of Business

How to Choose What MBA Program is Right for You: Take this Quiz Before You Apply!

Wondering what MBA program is right for you? Take this quiz before you apply to see if it will help you meet your goals.
Treasury Dept. now taking ‘extraordinary measures’ on debt