Extraordinary Measures Used to Extend Debt Ceiling

May 22, 2013

pic-money-collageOn May 19, the U.S. reached its borrowing debt limit, forcing the Treasury Department to employ “extraordinary measures” to make sure the government keeps paying its bills. Since Congress had not yet acted to approve normal borrowing authority after May 18, the Treasury Department was forced to implement these extraordinary measures.

As part of the budget compromise in February, lawmakers suspended the nation’s borrowing limit at $16.4 trillion and allowed Treasury to keep borrowing in order to pay our bills, however on Sunday, the debt ceiling automatically reset to a higher level reflecting the amount borrowed during the suspension period.

The latest numbers from the Treasury Department indicate that the overall debt of the U. S. swelled by about $300 billion during the period of the suspension, and now totals roughly $16.7 trillion.

It remains unclear how much time the extraordinary measures will buy. According to a letter to Congress, Treasury Secretary Jacob Lew said that the measure could last “until after Labor Day” but just how long after that is uncertain, he said, given that tax receipts are unpredictable as is the pace of spending due to the forced budget cuts that began in March.

As emphasized in Lew’s letter, increasing the debt limit does not increase spending or authorize new spending; rather, it simply permits the U.S. to continue to honor pre-existing commitments to our citizens, businesses, and investors here and around the world.

With the government once again operating under a borrowing cap, the Treasury has begun employing special measures to free up space under the limit. First, the Treasury stopped issuing State and Local Government Series securities (SLGS). State and local governments buy the securities as they work to refund municipal bond deals.

Other measures Treasury may take include halting new investments in federal employee retirement funds, which would be reimbursed once the limit is increased. It also can stop reinvesting in its Exchange Stabilization Fund used to buy and sell foreign currencies. All of these actions can free up billions of dollars the government can use to meet critical bills, and give lawmakers time to reach a debt-limit compromise.

Although Lew was confident the government could stay current until at least after the September holiday, lawmakers are likely to begin talks this summer, and the nation’s debt limit will play a central role in the fiscal debate this Fall.

Please click here for more from NSBA on the deficit.