The U.S. government hit its $31.4 trillion borrowing limit on Thursday, amid a standoff between the Republican-controlled House of Representatives and President Joe Biden’s Democrats that could lead to a fiscal crisis in a few months.
Treasury Secretary Janet Yellen informed congressional leaders including House Speaker Kevin McCarthy that her department had begun using extraordinary cash management measures that could stave off default until June 5.
Republicans, with a newly won House majority, aim to use the time until the Treasury’s emergency maneuvers are exhausted to exact spending cuts from Biden and the Democratic-led Senate.
Yellen warned that the June date was subject to “considerable uncertainty” due to the challenge of forecasting payments and government revenues months into the future.
“I respectfully urge Congress to act promptly to protect the full faith and credit of the United States,” Yellen told congressional leaders in a Thursday letter.
But there was no sign that either Republicans or Biden’s Democrats were willing to budge.
Republicans are pursuing a “debt prioritization” plan that would seek to avert default by urging the Treasury to prioritize debt payments, and possibly other priorities such as Social Security and Medicare, should the limit be breached during negotiations. Republicans hope to complete the legislation by the end of March.
Brian Deese, director of the White House National Economic Council, on Thursday emphasized the risks of the uncertainty over whether the United States will honor its debts to the country’s own economy, as well as its global standing.
“This is not that complicated. This is not about new initiatives or new opportunities. This is about meeting the obligations that this country has already made,” Deese said in an interview with CNN.
The prospect for brinkmanship has raised concerns in Washington and on Wall Street about a bruising fight over the debt ceiling this year that could be at least as disruptive as the protracted battle of 2011, which prompted a downgrade of the U.S. credit rating and years of forced domestic and military spending cuts.
“We’re not going to default on the debt. We have the ability to manage servicing and paying our interest. But we similarly should not blindly increase the debt ceiling,” Representative Chip Roy, a leading conservative, told Reuters.
Roy dismissed concerns about unsettling markets and risking a recession.
“That’s what they say every time. It’s like clockwork,” Roy said in an interview. “We’re already barreling toward a recession. The question is what it’s going to look like – unless the combination of monetary policy and fiscal policy saves us from our stupidity of having spent so much money.”
Congress adopted a comprehensive debt ceiling, the statutory maximum of debt the government can issue, in 1939, intending to limit its growth. The measure has not had that effect, as, in practice, Congress has treated the annual budget process — deciding how much money to spend — separately from the debt ceiling — in essence, agreeing to cover the costs of previously approved spending.
Negotiations on debt prioritization and spending are not expected to get into full swing until lawmakers return to Washington next week.
The Republican plan calls for balancing the federal budget in 10 years by capping discretionary spending at 2022 levels, and using House oversight to identify federal programs that can be eliminated or scaled back in spending bills that are expected to emerge from the House Appropriations Committee later this year.
In the meantime, House Republicans are vowing to reject sweeping government funding bills from Senate Majority Leader Chuck Schumer, akin to the $1.66 trillion bipartisan omnibus package that Congress passed late last year.
White House officials also note that Republicans in Congress backed multiple increases to the debt ceiling when Republican Donald Trump was president.
“We are optimistic that Democrats will come to the table and negotiate in good faith,” said Republican Representative Ben Cline, who leads a conservative task force on the budget and spending. “There’s a lot of room to negotiate when it comes to steps that can be taken to address the fiscal crisis that we find ourselves in.”