Congress failed to amend the debt ceiling suspension, forcing the Treasury Department to fund the federal government through “extraordinary measures.”
As The Daily Wire reported, Treasury Secretary Janet Yellen urged House Speaker Nancy Pelosi (D-CA) on July 23 to protect “the full faith and credit of the United States” by extending Congress’ 2019 suspension of the debt ceiling — a measure that stops the federal government from taking on a certain level of national debt. Congress, however, missed the Saturday deadline to extend the suspension.
According to Yellen’s letter to Pelosi:
If Congress has not acted to suspend or increase the debt limit by Monday, August 2, 2021, Treasury will need to start taking certain additional extraordinary measures in order to prevent the United States from defaulting on its obligations.
The period of time that extraordinary measures may last is subject to considerable uncertainty due to a variety of factors, including the challenges of forecasting the payments and receipts of the U.S. government months into the future, exacerbated by the heightened uncertainty in payments and receipts related to the economic impact of the pandemic. Given this, Treasury is not able to currently provide a specific estimate of how long extraordinary measures will last. However, there are scenarios in which cash and extraordinary measures could be exhausted soon after Congress returns from recess. For example, on October 1 alone, cash and extraordinary measures are expected to decrease by about $150 billion due to large mandatory payments, including a Department of Defense-related retirement and health care investment.
CNBC reports that the Treasury Department should be able to fund the government for two or three months without taking on new debt. If Congress does not act, however, the United States may risk defaulting on its debt for the first time in history.
“The government needs to have funds, for example, to pay interest on its debt, and if it were to stop paying interest that could be extremely unsettling for financial markets,” Harvard University economist Karen Dynan told the outlet.
Beyond the politics surrounding the debt ceiling, Wall Street has shown renewed skepticism toward the federal government’s ability to repay obligations.
Fitch Ratings — one of the “Big Three” rating agencies on Wall Street — issued a “Negative Outlook” on the United States’ creditworthiness due to ballooning federal debt. Though the United States retained its “AAA” rating, Fitch said that the outlook “reflects ongoing risks to the public finances and debt trajectory.”