U.S. Treasury to take ‘extraordinary measures’ to stay under debt limit

The emergency moves ultimately could give Democrats and Republicans until at least early June to adopt a law that would raise or suspend the country’s borrowing cap beyond its current level of $31.4 trillion. But they also stand to touch off fierce debate on Capitol Hill, where GOP lawmakers — now in control of the House — already have pledged to seize on the critical fiscal deadline to extract spending cuts from the Biden administration.

“The American people recognize the danger posed by out-of-control deficit spending and demand Congress do everything in its power to get our fiscal house in order,” said Rep. Jason T. Smith (R-Mo.), the new chairman of the tax-focused House Ways and Means Committee, in a statement.

With the clock ticking, however, the White House on Friday expressed an early yet adamant refusal to haggle with Republicans over what a top official described as a simple task of governance — the ability of the country to fulfill its own financial obligations.

Striking a defiant tone at the White House podium, press secretary Karine Jean-Pierre stressed to reporters: “We will not be doing any negotiation over the debt ceiling.”

“It is one of the basic items Congress has to deal with,” she later added, “and it should be done without conditions.”

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The Treasury Department’s notice amounted to an unofficial starting gun in a debate that has vast implications for the U.S. and global economies. Even the mere specter of a debt ceiling crisis — a series of standoffs that has only intensified in recent years — has previously roiled markets and cost the government billions of dollars.

“When the extraordinary measures are implemented, it signifies we are up against the debt limit and the clock is ticking,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center, a nonpartisan think tank.

The United States has never defaulted on its debts. But it has repeatedly come close, particularly in 2011, amid the rise of the conservative tea party movement in the House. Those Republicans’ clashes with President Barack Obama resulted in months of political brinkmanship, generated panic globally and yielded a decade of significant caps on domestic spending, which Democrats long decried as damaging.

Under Biden, congressional Republicans previously have tried to hold up efforts to address the debt ceiling, prompting a wide array of experts to emphasize the costs of a potential failure. In one September 2021 standoff, Mark Zandi, the chief economist at Moody’s Analytics, said a prolonged crisis could have catalyzed fully-fledged recession, wiping out billions of dollars in economic growth and eliminating up to 6 million jobs in the U.S.

So far, though, the two parties have managed to strike a deal before reaching the fiscal brink — most recently raising the debt limit in December 2021, pushing it up by $2.5 trillion to the current level of $34.1 trillion.

Still, many leading congressional Republicans have maintained they plan to drive a hard bargain as the next deadline approaches this year. In the House, they have pledged to wield their new majority — and the looming debt ceiling deadline — to force the Biden administration to accept sweeping spending cuts that Democrats oppose.

“We’ve got to change the way we’re spending money wastefully in this country,” House Speaker Kevin McCarthy (R-Calif.) told reporters Thursday.

Foreshadowing the tough negotiations to come, McCarthy said he hoped to “sit down with [Biden] early” to work through fiscal issues including the debt ceiling. In doing so, the new House speaker reaffirmed Republicans’ interest in seeking an agreement that could cap spending in exchange for votes to address the country’s borrowing cap.

Democrats on Friday responded to Republicans’ demands — and the Treasury Department’s latest warning — by blasting “extreme MAGA Republicans,” referring to former president Donald Trump’s previous campaign slogan. In a joint statement, Senate Majority Leader Charles E. Schumer (D-N.Y.) and House Minority Leader Hakeem Jeffries (D-N.Y.) pointed out that both parties had banded together to supply the necessary votes in the past, including under Trump, adding: “This time should be no different.”

But Republicans remained undeterred in seizing on the upcoming fight. Sen. Rick Scott (R-Fla.), in his own statement, cheered on his House counterparts, promising to work with McCarthy in the months ahead to “stop caving to Democrats.”

“A day of reckoning is coming. It’s long past time for Washington to end the reckless spending of taxpayer dollars and start living within its means,” Scott added.

In taking “extraordinary measures,” the Treasury Department prioritizes payments in ways that offer it more wiggle room to borrow, thereby extending how much time it has before it breaches the debt ceiling. It is unclear exactly how long it can benefit from such maneuvers; Yellen declined to offer a date but said it would likely forestall any crisis until early June.

“The use of extraordinary measures enables the government to meet its obligations for only a limited amount of time,” Yellen told lawmakers. “It is therefore critical that Congress act in a timely manner to increase or suspend the debt limit. Failure to meet the government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability.”