CBO Says U.S. Will Run Out of Cash by Early Fall Without Debt Limit Increase

(Bloomberg) -- The Treasury Department should be able to avoid the need for an increase in the U.S. debt limit into late summer or early fall if Congress doesn’t act earlier, the nonpartisan Congressional Budget Office said Tuesday.

Treasury can shift funds by using "extraordinary measures" to delay a default on payments, CBO said in a statement. The debt ceiling is currently suspended and is scheduled to come back into effect on March 2.

"With a large inflow of tax revenues in April, those extraordinary measures would enable the Treasury to continue financing the government’s activities for several months," CBO said in a report. "However, if the debt limit remains unchanged, the ability to borrow using those measures will ultimately be exhausted, and the Treasury will probably run out of cash near the end of this fiscal year or early in the next one."

CBO said that after the extraordinary measures run out, the Treasury would have to delay payments, default on payments or both. The measures could run out earlier or later than the estimated time period, CBO said.

The next fiscal year begins on Oct. 1. Senate Finance Committee Chairman Chuck Grassley predicted on Monday that Congress probably wouldn’t need to deal with the debt ceiling until around then. He said lawmakers likely would raise the debt limit as part of a deal on budget caps for fiscal 2020.

Earlier Tuesday, House Majority Leader Steny Hoyer, a Maryland Democrat, told reporters he has told Treasury Secretary Steven Mnuchin that he would back a debt ceiling increase without seeking any policy concessions.

“I’ve made it very clear that the debt limit is a phony issue," Hoyer said, adding that the limit needs to be raised periodically because of spending already enacted by Congress.

House Minority Leader Kevin McCarthy, a California Republican, said he would like to see budget cuts in any bill to raise the debt ceiling, given the $22 trillion national debt.

“Now is a perfect opportunity to have a bipartisan agreement on how to lower the long-term debt of America,” McCarthy said.

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