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How ‘Extraordinary Measures’ Can Postpone a Debt Limit Disaster


“Debt limit impasses have also repeatedly disrupted implementation of Treasury’s money management policy — with knock-on effects for money markets,” Joshua Frost, assistant Treasury secretary for financial markets, explained in a speech in December.

Mr. Frost added that the Treasury Department often has a day by day money balance of $600 billion to $700 billion, but that throughout the 2021 debt limit standoff, there have been days when it grew painfully near zero. Such situations can force the Treasury Department to undertake dangerous moves comparable to issuing same-day money management bills or conducting buybacks.

“There have been several instances once we didn’t have sufficient money readily available to satisfy even our next-day obligations,” Mr. Frost, who spoke on the Federal Reserve Bank of Recent York’s Annual Primary Dealers Meeting, said. “In the course of the course of that impasse, Secretary Yellen wrote eight separate letters to Congress regarding the importance of acting to handle the debt limit.”

The timeline for using these measures is uncertain.

Christopher Campbell, who served as assistant Treasury secretary for financial institutions from 2017 to 2018, said that because there so many variables in play, it is usually difficult to offer a precise estimate of the grace period between when the debt limit is breached and when america potentially defaults on its obligations.

“It is determined by receipts, it is determined by how the economy is doing, it is determined by how corporations are doing,” Mr. Campbell said. “There are some shell games and accounting games that go into it.”

The Bipartisan Policy Center said in a 2021 report that the timing of when the debt limit hits plays a task in how long extraordinary measures might last. Big government expenses in February could mean that X-date, when the federal government runs out of money, comes before anticipated, while robust April tax receipts could buy more time for extraordinary measures to maintain the lights on.

In her letter to Congress, Ms. Yellen said ominously that “Treasury shouldn’t be currently capable of provide an estimate of how long extraordinary measures will enable us to proceed to pay the federal government’s obligations.” She then surmised that it’s unlikely that money and extraordinary measures will probably be exhausted before early June.

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