Treasury issues warning over U.S. debt limit

The department says it will employ measures to avoid an unprecedented default this summer.

The Treasury Department says it will employ measures to avoid an unprecedented default on the national debt this summer, but officials say those measures could be exhausted “much more quickly” than normal in the global pandemic.

Treasury officials on Wednesday urged Congress to pass either a new borrowing limit or another suspension of the debt before a July 31 deadline. The Treasury will continue to initiate bookkeeping maneuvers to keep the government from breaching a level that would trigger a default on the massive national debt.

“In light of the substantial COVID-related uncertainty about receipts and outlays in the coming month, it is very difficult to predict how long extraordinary measures might last,” said Brian Smith, Treasury’s deputy assistant secretary for federal finance.

The government has been able to borrow enormous sums of money to finance trillions of dollars of support during the pandemic because the limit on borrowing has been suspended. But after July 31, the limit will return to whatever debt level exists at that time.

The national debt subject to the limit now stands at a record $28.1 trillion. That amount covers debt the government owes to itself in the form of commitments to Social Security and other government trust funds. The amount of the debt that is held by the public totals $22.1 trillion, an amount slightly higher than 100% of the entire economy and heights not seen since the government’s huge borrowing in the 1940s to finance World War II.

Borrowing has soared in recent years to finance huge budget deficits that reflected increased spending on domestic and military programs in budget deals then-President Donald Trump reached with Congress and also to cover the costs of Trump’s $1.5 trillion tax cut in 2017.

Over the past year, the higher deficits have reflected the trillions of dollars the government has spent to provide support during the pandemic-triggered recession. In the latest package, President Joe Biden got Congress to approve $1.9 trillion in March to provide $1,400 payments to individuals and other types of support for individuals and small businesses.

Treasury officials did not specify what measures it will employ if Congress has not acted by the July 31 deadline to either raise the borrowing limit or simply suspend the limit for a period of time.

What Treasury essentially uses book-keeping maneuvers to avoid a debt default. They basically entail withdrawing money invested in government accounts such as the fund that covers government pensions. The money is always replaced with any lost interest once the debt limit standoff is resolved.

Congress has never failed to deal with the debt limit by the deadline although in 2011 the standoff between Republicans and the Obama administration was so prolonged that Standard & Poor’s, the credit rating agency, downgraded a portion of the country’s AAA credit rating for the first time in history.