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Treasury Secretary Janet Yellen spelled out to Congress the steps her department is taking to continue paying the government’s bills after reaching its $31.38T debt limit on Thursday.
The Treasury will be unable to fully invest the portion of the Civil Service Retirement and Disability Fund not immediately required to pay beneficiaries, she said. A “debt issuance suspension period” will begin on Thursday, Jan. 19, 2023 and last through Monday, June 5, 2023. With that, the Treasury Department will suspend additional investments of amounts credit to, and redeem a portion of the investments held by, the CSRDF, as authorized by law.
In addition, similar actions will be taken with the Postal Service Retirees Health Benefits.
Once the debt limit is increased or suspended, both funds will be made whole, as required by law. Yellen assured that federal retirees and employees will be unaffected by the actions.
While Yellen’s previous letter to Congress estimated that these extraordinary actions would likely last into June, “the period of time that extraordinary measures may last is subject to considerable uncertainty,” she sad.
Once again, she urged Congress “to act promptly to protect the full faith and credit of the United States.”
The Urban-Brookings Tax Policy Center said that if the debt limit weren’t raised, the amount of spending cuts or tax increase required would equal $1.5T this year and $14T over the next 10 year.
“And if there were a default, interest rates would rise, increasing deficits and requiring even larger tax and spending changes,” said Leonard Burman and William G. Gale, both of the Urban-Brookings Tax Policy Center.
The only other advanced economy that uses a debt limit is Denmark.
Recall that in 2011, S&P cut the U.S.’s sovereign credit rating to AA+ when Congress and the Obama administration failed to reach a plan that S&P considered necessary to stabilize the government’s medium-term debt dynamics.
Also see: U.S. government set to hit the debt ceiling today: What next?
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