Extraordinary measures become standard as US hits debt limit again

The United States bumped up against its borrowing limit Sunday, forcing the Treasury Department to employ “extraordinary measures” to make sure the government keeps paying its bills.

{mosads}After a brief hiatus, the nation’s debt limit has returned as a major hurdle for Washington to overcome, and one that will play a central role in fiscal fights heading into the fall.

Congress agreed to suspend the nation’s $16.4 trillion borrowing limit the last time they approached it, at the beginning of the year. But that suspension expired May 19.

The latest numbers from the Treasury Department indicate that the overall debt of the United States swelled by about $300 billion during the period of the suspension, and now totals roughly $16.7 trillion.

In a nod to how common debt-limit battles have become in recent years, Treasury Secretary Jack Lew told Congress Friday he was prepared to deploy the “standard set of extraordinary measures.”

On Friday, the Treasury stopped issuing State and Local Government Series securities (SLGS). State and local governments buy the securities as they work to refund municipal bond deals. Issuing those securities takes up space under the debt limit.

The Treasury also has the power to halt new investments in federal employee retirement funds, which would be reimbursed once the limit is hiked. It also can stop reinvesting in its Exchange Stabilization Fund used to buy and sell foreign currencies. All these moves can free up billions of dollars the government can use to meet critical bills, and give Washington time to strike a debt-limit compromise.

Lew informed Congress that the debt limit would again be in an issue in a letter sent Friday. He told congressional leaders that the Treasury is preparing to employ its extraordinary measures to free up room to maneuver under the cap, and gave a hint as to how long Congress could haggle over raising it before a damaging default — after Labor Day.

While pinpointing an exact deadline for a borrowing boost is difficult due to “considerable uncertainty” about the government’s cash flow, Lew was confident the government could stay current until at least after the September holiday, after early estimates indicated lawmakers would be duking it out in the summer.

Lew also used the letter to offer up the White House’s initial offer in exchange for a debt-limit increase — no offer at all. Like his predecessor, Timothy Geithner, Lew was adamant that the debt limit is a matter too serious to be used as a bargaining chip, and maintained that any fiscal talks should be done separate from raising the ceiling.

“We will not negotiate over the debt limit,” Lew wrote. “The creditworthiness of the United States is non-negotiable. The question of whether the country must pay obligations it has already incurred is not open to debate.”

But Republicans are again adamant that the debt limit be used to force fiscal concessions. While no specific demands have been made, entitlement cuts or ways to set a framework for tax reform are expected to play a role as bargaining chips in the months to come.

The good news is that the debt limit standoff can last longer than first estimated. Increased tax revenue, combined with trimmed spending brought on by the sequester, is painting a rosier fiscal picture for the Treasury to operate within. Lew also cited a hefty payout from housing giant Fannie Mae as further pushing back a debt-limit deadline, noting that the agency is set to turn over $60 billion in profits in June, a cash infusion that will give the government even more room to breathe.

The CBO estimated earlier this week that the deficit will be $642 billion this year — $200 billion less than previously estimated three months ago. Because of increased revenue, the U.S. will be able to take extraordinary measures to avoid hitting the $16.4 trillion debt ceiling until October or November, the CBO said.

This story was updated at 2:52 p.m.