Treasury Unleashes Extraordinary Measures As US Crashes Into Debt Ceiling: What You Need To Know Right Now

Zinger Key Points
  • The Treasury will take extraordinary measures to avoid blowing through the debt ceiling.
  • Although the government will buy an additional five months time, a lengthy debt-ceiling debate is likely ahead.

The Treasury Department will go to extraordinary lengths Thursday to make sure the U.S. government can continue to foot its bills — and investors appear concerned.

What To Know: Congress set the debt limit at approximately $31.4 trillion in 2021 and the government is getting close to blowing through its own ceiling. As a result, the Treasury Department has started to unleash extraordinary measures to keep the money flowing.

The so-called extraordinary measures, or accounting maneuvers, include suspending investments for certain government accounts to allow the Treasury to keep making payments to bondholders and social security recipients until June, according to a report from The Wall Street Journal.

Last week, Treasury Secretary Janet Yellen called on lawmakers to increase the debt limit as soon as possible, noting that it was projected to reach its limit as early as Thursday, which was months ahead of economist estimates.

She provided an update Thursday, noting the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund will be affected by the changes. 

Why It Matters: Former Treasury Secretary Lawrence Summers reportedly said it would be "catastrophic" for the United States to default on its debt. 

"I think at the end of the day we will meet our obligations and not cause substantial disruption. But God, I wish we could move past this," Summers said.

Related Link: Larry Summers Says It Would Be 'Catastrophic' For US To Default On Debt: 'God, I Wish We Could Move Past This'

The measures leading to an extension won't fix the problem, but they will push the deadline off for an estimated five months, which sets Congress up for a potentially lengthy debt ceiling debate.

The report indicates that Republicans have made it clear that they will not vote in favor of raising the debt limit unless Democrats agree to cut federal spending. Yet Democrats have said they won't be pressured into cutting federal budgets. 

New House Speaker Kevin McCarthy called on President Joe Biden to begin talks as soon as possible. "Why create a crisis over this?" McCarthy reportedly said earlier this week.  

SPY Price Action: The SPDR S&P 500 SPY may be reacting negatively to a potentially lengthy policy battle over the debt limit. An extended debt limit debate in 2011 caused a U.S. credit downgrade and sparked significant volatility in markets, per WSJ.

The SPY was down 0.93% at $387.86 at time of publication, according to Benzinga Pro.

Photo: Kurtis Garbutt from Flickr.

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Posted In: GovernmentNewsPoliticsTreasuriesTop StoriesMarketsGeneralCongressJanet YellenJoe BidenKevin McCarthyTreasury Department
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