The Treasury Department will begin taking special cash-preservation measures on Monday to prevent the U.S. government from defaulting on its debt after Congress missed a key deadline to raise or suspend the borrowing limit.
The debt ceiling, which is currently around $22 trillion, is the legal limit on the total amount of debt that the federal government can borrow on behalf of the public; according to the Committee for a Responsible Federal Budget (CRFB). It applies to both the $16.2 trillion held by the public, and the $5.9 trillion owed by the government. If the debt ceiling is not raised or suspended, the U.S. government can no longer issue debt and will soon run out of cash on hand.
In 2019, former President Donald Trump suspended the nation's borrowing limit for two years, but that suspension expired on Saturday without any congressional action, forcing the Treasury Department to take what are known as "extraordinary measures" so the government can continue to pay its obligations.
"If Congress has not acted to suspend or increase the debt limit by Monday, August 2, 2021, Treasury will need to start taking certain additional extraordinary measures in order to prevent the United States from defaulting on its obligations," Treasury Secretary Janet Yellen wrote in a letter on July 23 to the top four congressional leaders.
"Extraordinary measures" the Treasury takes include a range of items such as halting contributions to certain government pension funds, suspending state and local government series securities and borrowing from money set aside to manage exchange rate fluctuations, according to the CRFB. The department also said that it would have $450 billion cash on hand starting in August.
The Treasury Department did not immediately respond to a FOX Business request for comment.
The Congressional Budget Office estimated at the end of July that the government would probably run out of money to pay its bills sometime in the fall, likely October or November.
It's unclear how or when lawmakers plan to raise or suspend the debt limit; Senate Minority Leader Mitch McConnell said recently that he doesn't expect any Republican senators to support actions to prevent the government from defaulting on its debt – meaning that unless Democrats can secure the support of at least 10 GOP senators, they will need to raise the debt limit in their $3.5 trillion reconciliation bill.
"The period of time that extraordinary measures may last is subject to considerable uncertainty due to a variety of factors, including the challenges of forecasting the payments and receipts of the U.S. government months into the future, exacerbated by the heightened uncertainty in payments and receipts related to the economic impact of the pandemic," Yellen wrote in her letter to Congress.
The U.S. has never defaulted on its debt before, but came close in 2011, when House Republicans refused to pass a debt ceiling increase, prompting rating agency Standard and Poor's to downgrade the U.S. debt rating one notch.
Temporarily defaulting on some of its obligations could have serious and negative economic implications. Interest rates would likely spike, and demand for Treasuries would drop; even the threat of a default can cause borrowing costs to increase.