The issue of the nation's debt limit is set to return as something that Congress will have to deal with in coming months. The New York Times reports that the issue is again coming to light after the 2019 action by a then-bipartisan Congress to suspend the debt limit until July 31.
The suspension was aimed at putting the budget issue off until after the elections and keeping it out of politics. But now the matter is fast approaching as lawmakers will have to address.
While the U.S. Treasury can take what are labeled "extraordinary measures" to avoid hitting the debt limit, the agency is warning that they are not sure this time around how long they can use those tools before the debt limit is hit.
"In light of the substantial COVID-related uncertainty about receipts and outlays in the coming months, it is very difficult to predict how long extraordinary measures might last," the agency said in a section of its so-called quarterly refunding statement on Wednesday, according to Bloomberg. "Treasury is evaluating a range of potential scenarios, including some in which extraordinary measures could be exhausted much more quickly than in prior debt limit episodes."
Some of those extraordinary measures can suspending sales of state and local government series Treasury securities and suspending reinvestment of the Exchange Stabilization Fund, the Times said. Treasury can also redeem existing investments of the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund and suspend reinvestment of the Government Securities Investment Fund.
In a briefing, a Treasury official would not commit to how long those tools could be tapped, again pointing to the uncertainty over the COVID situation.
"If Congress has not acted by July 31, Treasury, as it has in the past, may take certain extraordinary measures to continue to finance the government on a temporary basis," said Brian Smith, Treasury's deputy assistant secretary for federal finance. "In light of the substantial COVID-related uncertainty about receipts and outlays in the coming months, it is very difficult to predict how long extraordinary measures might last."
While Treasury could also prioritize what debts they will pay and which ones they will not, Smith simply said, "Congress needs to raise or suspend the debt limit, that's the way to resolve this issue."
With Democrats in charge of the House and Senate, they may opt to use budget reconciliation to push through an increase in the debt ceiling. But even then, they will have to count on all 50 Senate Democrats and nearly every House Democrat to even use that option.
If that approach is not used, the Times warned that Republicans could use it as leverage for spending cuts as they did several years ago.
While not an immediate issue, the matter will become one later this year. And with the level of debt piling up, the interest payments on that debt will be very important. The current level of interest rates has reduced the cost to service the debt. But if conditions which the market fear relative to inflation manifest themselves near the time the debt ceiling issue has to be addressed, that will add to the cost servicing the debt.
Plus, fears the U.S. could default on its obligations could send shockwaves through financial markets, another unwelcome development.
So, we will see. But producers will need to follow this issue closely as the deadline for action approaches. It could easily become a more-protracted fight than most would like. And a fight on that front could spill into several areas of the government, Washington Insider believes.