WASHINGTON, D.C. — The US reached the debt ceiling set by Congress on Thursday, prompting the Treasury Department to launch extraordinary measures to keep the government open and increasing pressure on Capitol Hill to avoid a catastrophic default.
The battle lines to fight the high stakes are already drawn. Hard-line Republicans, who wield enormous influence in the House because of their slim majority in the party, have demanded that the lifting of the borrowing limit be tied to spending cuts. The White House has countered that it will not make concessions or negotiate to raise the debt ceiling. And with the resolution of the debt-ceiling drama in the hands of lawmakers, fears are growing that partisan infighting could lead the country to default on its debt for the first time in history — or come dangerously close.
National Economic Council Director Brian Deese on Thursday repeatedly called on Congress to meet the United States’ commitments by raising the debt limit, warning of “economic chaos” that could ensue if Congress fails to do so.
“This is about economic stability versus economic chaos,” Dez Caitlan Collins said on “CNN This Morning,” calling it a “fundamental, fundamental commitment of Congress.”
He added: “Even just the specter that the United States might default is hurting the economy.”
The announcement that the US has reached the debt ceiling follows Yellen’s warning last week about the approaching debt ceiling, urging lawmakers to “act immediately to protect the full faith and credit of the United States.” Emergency measures will buy Congress some time – Yellen said it was unlikely the government would exhaust its money and emergency maneuvers before early June, although she noted there was “significant uncertainty” around that forecast.
But her message has not yet sparked a bipartisan debate. Instead, both Republicans and Democrats reaffirmed their hardline positions last week.
House Speaker Kevin McCarthy must walk a fine line as any member can apply to vacate the speaker’s seat, one of several concessions he made to win the top job after 15 rounds of voting earlier this month.
For now, he is leaning on using the debt ceiling crisis to cut spending and balance the US budget. On Tuesday, McCarthy rejected calls from Democrats for a clean increase in the debt ceiling with no strings attached — something Congress has done time and time again, including under then-President Donald Trump. The speaker told reporters on Capitol Hill that the Biden administration should begin negotiations before this summer, when the U.S. could default.
“Why don’t we sit down and change these behaviors to put ourselves in a stronger position financially?” McCarthy said.
President Joe Biden and McCarthy had yet to talk about the debt limit Thursday, according to an official familiar with the situation.
Right-wing GOP Rep. Andy Biggs went even further on Twitter on Tuesday, writing: “We cannot raise the debt ceiling. Democrats have recklessly spent our taxpayer money and devalued our currency. They made the bed, so they have to lie in it.”
The White House on Wednesday criticized the Arizona Republican’s “stunning and unacceptable position” and again rejected calls for spending cuts as part of the debt ceiling deal.
While there have been no meetings with congressional leadership at this time, White House press secretary Karin Jean-Pierre told reporters that the administration has reached out to “all members on both sides of the aisle” but “there will not be any Debt ceiling negotiations – we won’t do that, that’s their constitutional duty.”
The debt ceiling, which is the maximum amount the federal government can borrow to finance obligations already approved by lawmakers and the president, was last raised in December 2021 to $31.4 trillion. Created more than a century ago, it became a way for Congress to limit the growth of borrowing — turning it into a political football in recent decades.
Increasing the limit does not allow you to take on new spending obligations.
The Treasury is expected to temporarily avoid default
The Treasury will begin using two emergency measures to allow it to temporarily continue funding the federal government’s operations, Yellen wrote on Thursday. It’s mostly behind-the-scenes accounting maneuvers.
The agency plans to begin selling existing investments and suspend reinvestment of the Civil Service and Disability Retirement Fund and the Postal Service Retiree Assistance Fund. In addition, it would suspend the reinvestment of the Federal Employees Retirement Thrift Savings Plan’s government securities fund.
These funds are invested in special treasury securities that count toward the debt limit. The Treasury’s actions will reduce the amount of outstanding debt subject to the limit and temporarily allow it to continue to pay government bills on time and in full.
No pensioners will be affected and the funds will be in full once the impasse ends.
What Republicans are discussing
As part of his concessions, McCarthy promised to pass a proposal by the end of March that would tell the Treasury Department what payments should be prioritized if the debt ceiling is exceeded, Republican Rep. Chip Roy confirmed to CNN last week.
Roy, a Texas Republican who is a key campaigner for McCarthy’s resignation, cautioned that the contours of the proposal are still being worked out, noting that several different versions of the payment priorities plan have been circulating in the House of Representatives.
But choosing to pay one set of obligations over another can raise legal issues as well as political and ethical difficulties. For example, lawmakers would have to decide what to pay first—monthly Social Security payments to tens of millions of senior citizens and Americans with disabilities, the salaries of federal employees and military personnel, or interest on U.S. debt to numerous investors, many of them foreign.
CNN contributed to this report.