Treasury debt limit looming, CBO says

Congress should act soon so U.S. can pay its bills, agency warns.

WASHINGTON — The Treasury Department will likely run out of money to pay the nation’s bills by the end of September unless Congress takes action, the Congressional Budget Office said Tuesday, raising a scenario that could cause financial havoc and shake the foundations of the global economy.

The U.S. government has been spending more money than it brings in for years, forcing the Treasury to borrow money by issuing bonds. But the Treasury is allowed to issue only so much debt before it bumps up against the “debt ceiling,” a borrowing limit set by Congress.

Congress had previously agreed to suspend that limit until March 2. But when the limit comes back into effect, the Treasury will not technically have the authority to borrow additional funds. This scenario has happened numerous times in recent years, and Republican and Democratic administrations have resorted to what have been dubbed “extraordinary measures” to be able to keep paying the government’s bills — at times for several months after the debt ceiling is reached. But those efforts can keep the bills paid for only so long.

“The length of time that extraordinary measures can last is subject to considerable uncertainty,” wrote Jonathan Blum, a deputy assistant secretary at the Treasury, in a recent letter to Rep. Richard Neal, D-Mass. “Given this uncertainty, Treasury respectfully urges Congress to act as soon as possible to suspend or increase the statutory debt limit and protect the full faith and credit of the United States.”

The Trump administration has

not given a specific date for when it believes the Treasury will run out of money, but the bipartisan CBO report is a widely respected estimate of when real trouble might occur. “The Treasury will probably run out of cash near the end of this fiscal year or early in the next one,” the CBO reported. The federal government’s fiscal year ends Sept. 30.

Congress has always voted to raise the debt ceiling in the past, but some Republicans threatened not to do so in 2011 in a standoff with former President Barack Obama over how to curb government spending. The mere threat not to raise the debt limit caused panic in financial markets and led Standard & Poor’s to downgrade the nation’s credit rating for the first time.

Federal Reserve Chairman Jerome Powell was asked Tuesday about what would happen to financial markets if Congress does not vote to raise the debt ceiling soon.

“It’s beyond even considering,” Powell said. “The idea that the United States would not honor all its obligations and pay them when due is something that can’t even be considered.”

Congress voted in February 2018 to suspend the debt limit through March 1, 2019, as part of a bipartisan budget deal.

Prominent economists and policymakers on both sides of the aisle have called for the U.S. to get rid of the debt ceiling altogether. But others argue the limit still serves to remind Americans the federal government is more than $22 trillion in debt.