Mnuchin Invokes Special Debt Measures to Last Until June 5

(Bloomberg) -- Treasury Secretary Steven Mnuchin invoked special accounting measures through June 5 to continue paying the U.S. government’s bills without breaching the legal debt ceiling.

The U.S. debt limit resumed March 1 after being suspended by Congress, but the Treasury Department can use so-called extraordinary measures to prevent a default on payments for months beyond that. Mnuchin notified Congress on Monday that he is using such measures to redirect money from the federal civil service’s retirement fund.

“I respectfully urge Congress to protect the full faith and credit of the United States by acting to increase the statutory debt limit as soon as possible,” Mnuchin wrote in a letter dated March 4 addressed to congressional leaders.

Mnuchin can extend the period during which the retirement funds are diverted beyond June 5 and has other special measures he can use to delay a U.S. default beyond that date.

Congress is in no hurry to raise the debt ceiling with lawmakers widely expecting to address it closer to the time when the Treasury is running out of options to avoid a default. The non-partisan Congressional Budget Office has estimated that the federal government can use extraordinary measures to stave off a default until late summer or early autumn. 

House Democrats hope to combine an increase in the debt limit with a deal to raise the spending caps, said a senior Democratic aide.

House Budget Chairman John Yarmuth of Kentucky said last week that he “cannot imagine” the debt ceiling would be raised before mid April, when the House will vote on a budget resolution that also would raise debt ceiling. The House budget resolution is expected to be dead on arrival in the Senate, but it could trigger negotiations on an increase in caps on federal spending.

The federal debt limit was first conceived almost a century ago to make it easier for the government to borrow money. But it morphed into an explosive political tool with the potential to roil financial markets, since a failure to raise the debt ceiling could eventually result in a first-ever default on some of the government’s obligations.

Raising the debt ceiling allows the government pay for things it has already decided to buy. Some want to abolish it, arguing that the congressional battles cost taxpayers money by increasing economic uncertainty, among other problems. Debt-limit supporters say opponents overstate the potential harm and that using it to bargain for spending cuts serves the public interest at a time of historically high debt levels.

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