The United States hit its debt limit, beginning a countdown for the Treasury to miss paying a bill and raising fears of a default.
The U.S. hit the debt limit, also known as the debt ceiling, on Thursday, the Treasury Department announced. Treasury Secretary Janet Yellen said that the Treasury will take “extraordinary measures” to prevent the U.S. from defaulting on its obligations, but the Treasury will only have a few months before those measures are exhausted.
“I respectfully urge Congress to act promptly to protect the full faith and credit of the United States,” Yellen said in a letter Thursday to congressional leadership.
Those “extraordinary measures” essentially amount to shifting money around government accounts in order to pay incoming bills without issuing new debt. The measures have been used at least 16 times since first being deployed in 1985, according to the Committee for a Responsible Federal Budget, and as recently as 2021.
Those measures won’t last long, though, and lawmakers will have to raise the debt ceiling or face the prospect of default, an outcome thought to be catastrophic. Yellen has previously said the measures would be sufficient to carry the U.S. through early June, setting up a rough deadline for the congressional showdown.
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The U.S. has never defaulted on its obligations in the history of these fiscal showdowns. Republicans see the deadline as an opportunity to exact concessions from the Biden administration and Democrats.
The GOP hopes to see spending cuts in light of soaring inflation and high deficits. Meanwhile, Democrats have pushed back at the notion of Republicans using the deadline as a political tool, given that raising the ceiling doesn’t involve any new spending but rather simply allows for the government to pay off its previous obligations.
Meanwhile, among economists and interest groups, there are near unanimous calls for Congress to raise the debt limit and not play a dangerous game of brinkmanship with the Biden administration.
“Without qualification, the debt limit must be increased or suspended, and it should be done so as quickly as possible. Ideally, we would return to the practice of lifting the debt ceiling without relying on extraordinary measures, which have become all too ordinary, and refrain from making the increase anything close to a last-minute showdown,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
New House Speaker Kevin McCarthy (R-CA) has expressed willingness to work with President Joe Biden and congressional Democrats on a deal to cap government spending and avoid a default, although details of exact numbers and GOP demands are still unclear.
“I want to sit down with him now, so there is no problem,” McCarthy said. “I’m sure he knows there’s places that we can change that put America on a trajectory that we save these entitlements instead of putting it into bankruptcy the way they have been spending.”
Rep. Jason Smith (R-MO), the new chairman of the Ways and Means Committee, said on Thursday that House Republicans want to use the opportunity to work with the administration on the budget deficit and spending.
“The American people rightfully recognize that maintaining Washington’s status quo, which runs up massive deficits and adds trillions to our national debt, is unsustainable,” he said. “Instead of attacking his political opponents, President Biden should be spending this time working with House Republicans to address the debt ceiling in a way that imposes some fiscal sanity.”
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Yellen has implored Congress to act quickly to avert even the perception that the government might default.
“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,” she said in a statement earlier this month.
