U.S. Debt Limit Timing Tough to Tell, Treasury’s Adeyemo Says

U.S. Treasury Deputy Secretary Wally Adeyemo said that determining exactly how long his agency can keep from breaching the federal debt ceiling is difficult amid the continuing impact of Covid-19 spending measures.

The issue is of looming importance to the Treasuries market given the end of a two-year suspension of the debt limit at the conclusion of this month. Lawmakers have yet to craft a plan to boost the ceiling.

The Treasury Department typically uses special accounting measures -- like suspending sales of state and local government bonds -- to extend by as much as several months the date by when the nation’s legal debt limit is reached.

But with large and volatile amounts of government cash being pumped into the economy -- such as for small business loans and, just this week, $15 billion in child tax credits for families -- it’s hard to know how much scope Treasury Secretary Janet Yellen and her team will have to delay hitting the debt limit.

“We’re living in a time that’s different than any other because we’re dealing with a global pandemic -- that makes it harder to predict what that date will be,” Adeyemo said Thursday during an interview on Bloomberg Television. “That’s why the secretary has called on Congress to act as soon as possible.”

2011 Lesson

Boosting the federal borrowing cap typically involves a tense political battle, with partisan bickering over tax and spending policies. Congressional leaders sometimes only seal a deal just before the Treasury has almost exhausted its ability to meet the nation’s obligations.

Gene Sperling, a senior adviser to President Joe Biden, said in a separate interview on Bloomberg TV Thursday that while 2011 had been set to be a “strong” year of economic recovery in the wake of the financial crisis, “we hurt our economy through a debt scare by people holding the debt limit hostage.”

In 2011, political brinkmanship led to the first ever credit downgrade for the U.S.

“I really believe that everyone has learned the lesson -- that that is just a self-inflicted wound to the American people by their government,” he said of the debt limit.

Yellen told lawmakers last month that breaching the debt limit would be “catastrophic.”

Fall 2021

“The key now is ensuring that we do what the country has done for more than 200 years, which is make sure that we keep the full faith and credit of the United States” intact, Adeyemo said. “That means that Congress should extend the debt limit as soon as possible.”

The Bipartisan Policy Center in Washington has estimated the debt limit will be reached “sometime in fall 2021,” noting that it’s unusually difficult to forecast this time around.

Adeyemo separately noted that while home prices have been climbing, measures proposed by the Biden administration should be able to help.

U.S. Debt Limit Timing Tough to Tell, Treasury’s Adeyemo Says

“As we get more supply online, we expect to see prices normalize,” Adeyemo said in the interview. “Housing supply shortages have been a problem that we’ve had in our economy long before Covid. That’s been exacerbated by the Covid crisis.”

Yellen is set to discuss the issue of home prices with the Financial Stability Advisory Council on Friday, of which Federal Reserve Chair Jerome Powell is also a member.

The White House has proposed measures to address affordable housing in Biden’s $4 trillion longer-term economic agenda. Biden is also looking to extend an expanded child tax credit that was enacted in the $1.9 trillion March pandemic-relief bill. The monthly distribution of those payments began Thursday.

“What it’s going to do for the economy and those individuals is put parents in the position to invest in our future by investing in their children,” Adeyemo said of the expanded child tax credit. “They key for us is investing in human capital.”

©2021 Bloomberg L.P.

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