Yellen warns Treasury could exhaust extraordinary debt limit measures in October
Yellen urges Congress to raise, or suspend, debt ceiling before US breaches limit
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Treasury Secretary Janet Yellen on Wednesday renewed her pressure on Congress to boost or suspend the nation's debt ceiling, warning the department's efforts to temporarily finance the U.S. government could end as soon as October.
"Based on our best and most recent information, the most likely outcome is that cash and extraordinary measures will be exhausted during the month of October," Yellen wrote in a letter to congressional leaders.
Lawmakers missed a deadline at the end of July to extend former President Donald Trump's two-year suspension of the nation's borrowing limit, which was automatically reinstated at the beginning of August.
The debt ceiling, which hit $22 trillion in August 2019, 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). Once the suspension lifted, the new limit was reinstated around $28.5 trillion, a figure that includes debt held by the public and the government.
At the beginning of August, the Treasury Department began deploying so-called "extraordinary measures" to ensure the government can continue to pay its obligations for the time being. But 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.
House Speaker Nancy Pelosi said Tuesday that Congress has "several options" over the coming weeks to raise, or suspend, the debt ceiling before the U.S. government runs out of cash to pay its bills. But she rejected a push to tether the debt limit to the $3.5 trillion tax and spending bill that Democrats are planning to pass unilaterally, teeing up a partisan battle with GOP lawmakers this month.
"We’d like to do it in a bipartisan way," Pelosi said. "We don’t ever want to put the full faith and credit [of the U.S.] in doubt
But Senate Republicans are resisting a move to raise the nation's borrowing limit, with 46 of them pledging to oppose any increase this fall with a vote that would require at least 10 GOP lawmakers to pass.
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"I can't imagine there will be a single Republican voting to raise the debt ceiling after what we've been experiencing," Senate Minority Leader Mitch McConnell said during a recent interview with Punchbowl News.
If the U.S. failed to raise or suspend the debt limit, it would eventually have to temporarily default on some of its obligations, which could have serious and negative economic implications. Interest rates would likely spike, and demand for Treasurys would drop; even the threat of default can cause borrowing costs to increase.
While the U.S. has never defaulted on its debt before, it 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.
The nonpartisan 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. The new debt ceiling, which will include the new spending approved by Congress over the course of the past two years, will likely be around $28 trillion, the CBO said.