The Treasury takes “extraordinary measures” as the US reaches the debt ceiling

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The US Treasury has begun taking “extraordinary measures” to meet its obligations, after the US government exceeded its $31.4 trillion borrowing limit, Janet Yellen said in a letter to congressional leaders on Thursday as she urged lawmakers to raise the debt ceiling sooner rather than later. To avoid an unprecedented stumble.

The Treasury Secretary had earlier warned that the US government would hit the debt ceiling – the country’s legal borrowing limit – on Thursday. Yellen sent a letter confirming the breach to Republican House Speaker Kevin McCarthy and House Democratic Minority Leader Hakeem Jefferies Thursday morning.

Yellen warned that there was “a great deal of uncertainty” surrounding how long the “extraordinary measures” would last before the US government risked default.

“I respectfully urge Congress to act expeditiously to protect the full confidence and trust of the United States,” she said.

The Treasury secretary said earlier that it was “unlikely” that the government would run out of cash before “early June,” but there are a range of estimates about when the US will face the possibility of default. The timing of the brink depends on a host of factors, including incoming tax receipts.

Yellen’s letter set fire to a legislative battle that is expected to drag on for months given the fragmentation of Congress, with Republicans controlling the House of Representatives and Democrats holding on to the Senate. Republicans control the House of Representatives by a very small margin, giving a minority of conservative members the power to block legislation.

Several Republican rebels flexed their muscles during McCarthy’s election this month as Speaker of the House, insisting the debt ceiling should be raised only if Democrats make concessions to cut federal spending over the next decade. The White House said it was not open to negotiating the matter, accusing Republicans of risking a catastrophic default.

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In order to create additional borrowing capacity, Yellen said Thursday that the Treasury Department will stop investing in the Civil Service Retirement and Disability Fund as well as the Postal Service Retirees Health Benefits Fund. She added that both funds “will become full” after a debt agreement is reached, and that federal workers and retirees will not be affected by these measures.

Once these extraordinary measures are exhausted, the Treasury may have to resort to other tactics, including prioritizing interest and principal payments on government debt over other expenditures, such as Social Security and military wages.

Such a process would be costly, experts at the Bipartisan Policy Center warned, involving “sorting and choosing from hundreds of millions of monthly payments, pushing the boundaries of Treasury’s fintech systems and forcing executive branch officials to pick winners and losers.”

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