BACKGROUND AND RECENT DEVELOPMENTS:
- The statutory limit on the public debt, often called the “debt ceiling,” is a legal limit on the Treasury’s ability to borrow funds necessary to finance already incurred obligations of the United States.
- If Congress passes spending measures that exceed incoming revenues, but prevents the Treasury from borrowing funds to cover the deficit, the nation would default on its legal obligations to lenders, Social Security beneficiaries, veterans, Medicare providers and all others to whom payments are legally owed.
- Default has never occurred and would have catastrophic effects on the ability of the U.S. Treasury to issue bonds in the future, as well as destabilizing global financial markets.
- In the Balanced Budget Act of 2015, Congress suspended the debt ceiling through March 15, 2017, at which time the statutory limit was automatically re-set at the current debt level.
- Treasury can take extraordinary measures that allow it to continue borrowing for several months before hitting the new debt ceiling, including:
- Suspending investments of the Thrift Savings Plan’s G Fund.
- Suspending investments of the Exchange Stabilization Fund.
- Suspend the issuance of new securities to the Civil Service Retirement and Disability Fund (CSRDF) and Postal Service Retiree Health Benefits Fund (PSRHBF).
- Redeem, in advance, securities held by the CSRDF and the PSRHBF in amounts equal in value to benefit payments due in the near future.
- Suspend the issuance of new State and Local Government Series (SLGS) securities and savings bonds.
- Exchange Federal Financing Bank securities, which do not count against the debt limit, for an equal amount of Treasury securities held by the CSRDF.
March 7, 2017: CBO released a report on the debt ceiling stating, “If the current suspension is not extended or a higher debt limit is not legislated before March 16, the Treasury will, from that date forward, have no room to borrow under standard operating procedures. Therefore, to avoid breaching the ceiling, the Treasury would begin taking the extraordinary measures that would allow it to continue to borrow for a limited time. Continued use of those measures, along with regular cash inflows, should allow the Treasury to finance the government’s activities for the next several months without an increase in the debt ceiling.” (emphasis added) The CBO report provides a useful description of the extraordinary measures that can be taken to delay the next debt ceiling increase, as well as useful information on federal cash flows and Treasury auctions.
Reports and Background on the Debt Ceiling: