Treasury Starts Additional Steps to Avoid Debt-Limit Breach
(Bloomberg) -- The Treasury Department began using additional special measures to avoid U.S. default, after the debt limit was reinstated Sunday following a two-year suspension.
The department is pausing new investments in several federal employee retirement and benefit funds, Treasury Secretary Janet Yellen said Monday in a letter to Congress. Previous secretaries have taken similar action during prior episodes over the limit, Yellen wrote.
Unless Congress raises or suspends the debt ceiling again, the U.S. may be headed toward default as early as October. Treasury used its first special measure on Friday to avoid breaching the limit by halting the sale of certain state and local bonds.
“I respectfully urge Congress to protect the full faith and credit of the United States by acting as soon as possible,” Yellen said in the document. She also reiterated an assertion from a July 23 letter that it’s uncertain this year how long the extraordinary measures would last, given the effects of Covid-19 on the economy.
Democrats have yet to propose a plan for tackling the debt limit prior to Treasury running out of cash to pay its obligations. Lawmakers are set to leave Washington for their August recess in the coming days, and won’t return to Washington until September.
As a result, Treasury will need to curtail borrowing in coming months to preserve cash.
Steps taken Monday by Treasury include suspending additional investments in the Civil Service Retirement and Disability Fund, Postal Service Retiree Health Benefits Fund and a fund within the Federal Employees’ Retirement System. Treasury noted that government retirees and employees will be unaffected.
One other tool available to the Treasury to conserve headroom is to suspend the daily reinvestment of securities held by the Exchange Stabilization Fund. Treasury said in 2019 that such an action would free up about $22 billion.
©2021 Bloomberg L.P.