The Oneida Daily Dispatch (Oneida, NY)

EXPLAINER: How ominous is the debt limit problem?

- By Josh Boak

WASHINGTON (AP) — On the brink of hitting the nation’s legal borrowing limit on Thursday, the government is resorting to “extraordin­ary measures” to avoid a default.

Sounds ominous, right? But -- take a breath -- the phrase technicall­y refers to a bunch of accounting workaround­s. Yes, accounting.

Because the debt cap limits the issuance of government bonds — a way the U.S. borrows money — these workaround­s shift money among accounts and should keep the government open through at least June, according to a letter last week by Treasury Secretary Janet Yellen.

In theory, President Joe Biden and Congress are supposed to use that additional time to work out an agreement to raise the nation’s legal $31.38 trillion debt ceiling. These talks often grow heated and go down to the wire, with major economic damage in the balance. But there have been roughly 80 deals to raise or suspend the borrowing cap since the 1960s.

What could be worrisome is not the existence of extraordin­ary measures, but what happens if they are exhausted this summer without a deal in place. Economists have warned that could lead to a global financial crisis.

So far, House Speaker Kevin Mccarthy and Biden are playing what could be a dangerous game of chicken with the world’s largest economy in the middle.

Some questions and answers on the situation:


Yellen’s Friday letter listed two measures that will begin this month in order to prevent the government from defaulting.

First, the government will temporaril­y suspend payments to the retirement, disability and health benefit funds for federal employees. Second, it will suspend the reinvestme­nt of maturing government bonds in the retirement savings accounts of government workers.

By suspending the payments, the government can reduce the amount of outstandin­g debt. That enables the Treasury Department to keep financing government operations, according to Yellen’s letter.


No dispute there. Congress has given Treasury the authority to do so.

Because these are retirement accounts, no one is harmed by

the government equivalent of an IOU. The funds are made whole after a debt ceiling increase or suspension becomes law. It’s not necessaril­y the measures that can harm the economy but rather the doubts among consumers and businesses about whether lawmakers will increase the borrowing cap.


There were $986 billion in net assets of the civil service and federal employees retirement funds at he end of fiscal 2021, according to a report by the Office of Personnel Management.

The required government contributi­ons to the funds are large enough to rely on these extraordin­ary measures for roughly five months.


“Treasury Secretarie­s in every Administra­tion over recent decades have used these extraordin­ary measures when necessary,” Yellen wrote in her letter.

The measures were first deployed in 1985 and have been used at least 16 times since then, according to the Committee for a Responsibl­e Federal Budget, a fiscal watchdog.


Before World War I, Congress needed to approve each bond issuance. The debt limit was created as a workaround to finance the war effort without needing a constant series of votes.

Since then, a tool created to make it easier for the government to function has become a source of dysfunctio­n, stoking partisan warfare and creating economic risk as the debt has increased in size over the past 20 years.


It looks alarming -- and it’s not clear how Biden, Mccarthy and the Democratic Senate will find common ground. A default could cause millions of job losses, a deep recession that would reverberat­e globally and, ironically, higher interest rates that would make it harder to manage the federal debt.

Mccarthy said Tuesday that talks should begin immediatel­y on the potential spending cuts that Republican­s are seeking in exchange for raising the debt limit, even though the Biden administra­tion has equated that demand to holding the U.S. economy hostage.

“Who wants to put the nation in some type of threat at the last minute of the debt ceiling?” Mccarthy said. “Nobody wants to do that. That’s why we’re asking, ‘Let’s change our behavior now. Let’s sit down.”

The Biden administra­tion wants the borrowing cap increased without any preconditi­ons. White House press secretary Karine Jean-pierre on Tuesday ruled out holding talks with Mccarthy.


The Congressio­nal Budget Office estimates that annual budget deficits will grow from roughly $1 trillion to more than $2 trillion over the next 10 years.

The imbalance over the coming years increasing­ly reflects government expenses for programs such as Medicare and Social Security that are outstrippi­ng tax revenue. That suggests the government would need severe cuts to spending, major tax hikes or some combinatio­n of those options.

In 2011 when Barack Obama was president and Biden was vice president, there was a bipartisan deal to raise the debt limit by $900 billion in return for $917 billion worth of automatic spending cuts over 10 years.

But the debt reduction never fully materializ­ed.

After Donald Trump became president in 2017, Republican lawmakers fueled further debt increases by passing deficit-financed tax cuts. Debt accelerate­d even more with the start of the coronaviru­s pandemic in 2020, which caused massive government borrowing in order to pull the U.S. out of a deep recession.

The CBO last year estimated that the U.S. debt would exceed $40 trillion in 2032.

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