Treasury has about US$500b worth of extraordinary measures
THE Treasury Department has about US$500 billion of extraordinary measures available that will allow the US to dodge a payments default as Congress works out an agreement on raising the debt limit, which the nation hit Thursday (Jan 19).
Treasury Secretary Janet Yellen notified congressional leaders on Thursday that her department would be deploying two special accounting manoeuvres to avoid breaching the debt limit.
The Treasury later released a list of the extraordinary measures available, with some figures on how much financial space they offer.
The initial two steps taken can free up about US$350 billion of extra borrowing authority through early June, according to a Jefferies analysis of data from the department. The initial measures involve changes for two government-run funds for retirees.
Later in June, a one-time move would then become available allowing the Treasury to suspend reinvestment in the Civil Service Retirement and Disability Fund, potentially creating an additional US$143 billion in headroom, according to the Treasury’s release.
Other steps the Treasury can still deploy include suspending investments in certain funds.
Estimated timeline
Wall Street analysts have estimated the Treasury has room to keep functioning without a debt-limit resolution until July or August. Yellen has not yet specified to Congress when the Treasury anticipates running out of cash – the so-called X-date – only stating that it is unlikely the extraordinary measures would be exhausted before early June.
The current debt ceiling is almost US$31.4 trillion.
“The big question, of course, is what tax revenues look like in the coming months as the economy slows,” said Gennadiy Goldberg, a senior US rates strategist at TD, who said the flexibility of certain measures that accumulate on a monthly basis could push the total available amount to roughly US$500 billion to US$550 billion.
“A slowing in tax revenues may pull estimates for the X-date forward.”
While some House Republicans have suggested the Treasury could prioritise some payments over others if it did run out of cash to meet all federal obligations, Yellen on Friday called that plan unworkable.
She said any non-payment of obligations would be a default.
“Failure on the part of the United States to meet any obligation – whether it’s debt holders, to members of our military or to Social Security recipients – is effectively a default,” she said while speaking with reporters in Dakar, Senegal. BLOOMBERG
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