In the weeks leading up to Congress approving a short-term debt limit increase, Treasury Secretary Janet Yellen warned that her department was running out of time employing “extraordinary measures” to cover the federal government’s obligations. Her doom-and-gloom alarm bells made it sound like default was imminent, and Treasury officials were running out of options. It turns out that Yellen still possesses a few tricks up her sleeve. That is — until the next deadline approaches in December.
December Is the New October
In a new letter to lawmakers, Yellen assured congressional leaders that she would extend extraordinary cash management mechanisms to ensure the U.S. government remains under the federal debt ceiling until Dec. 3. Republicans and Democrats recently struck a last-minute deal to raise the borrowing limit by $480 billion.
The former head of the Federal Reserve explained that expanding the “debt issuance suspension period” would allow the Treasury to maintain suspensions of investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund. This would also consist of temporarily halting the sale of State and Local Government Series (SLGS) securities.
“It is imperative that Congress act to increase or suspend the debt limit in a way that provides longer-term certainty that the government will satisfy all of its obligations,” she wrote in a letter to House Speaker Nancy Pelosi (D-CA), Senate Minority Leader Mitch McConnell (R-KY), and other congressional leaders.
If both parties strike another agreement that kicks the can down the road, will the Treasury uncover critical funding measures to make certain Washington pays its bills?
A September Letter to Remember?
In September, when there was one minute to midnight, Yellen penned a letter to Pelosi and told her that the Treasury would be left with “very limited resources that would be depleted quickly” if the Democrats and the GOP did not establish an arrangement on the $28.4 trillion debt ceiling. Moreover, Yellen asserted that there was immense uncertainty that the Treasury would meet the country’s financial commitments after Oct. 18.
“Failure to act promptly could also result in substantial disruptions to financial markets, as heightened uncertainty can exacerbate volatility and erode investor confidence,” the secretary stated.
The White House went as far as prognosticating that the United States could plunge into a recession.
“The U.S. economy has just begun to recover from the pandemic and a manufactured debt ceiling crisis would threaten the gains we’ve made and the future recovery,” the administration pontificated in a note. “If the U.S. defaults on its obligations, the ripple effects will hurt cities and states across the country.”
But, in theory, could Yellen simply come to the government’s rescue once again? If President Joe Biden and the Democrats fail to extend the debt limit, she could count on Republicans buckling under the pressure. As Liberty Nation’s James Fite recently reported, “Former President Donald Trump – and some Democrats – hold the opinion that the GOP simply caved under the pressure, the fear of how they would look if the creditors came for the country.”
A Fight to the Debt
Be it battles over the debt ceiling or disputes on $3.5 trillion spending proposals, the supposed adults in charge continue to ignore the long-term fiscal issues facing the United States. Social Security is running out of cash. The government is paying hundreds of billions of dollars a year on debt-servicing charges. The country is facing $200 trillion in unfunded liabilities and expenditures. The political theater might make for great television and ensure both sides play the blame game, but these periodic skirmishes do nothing to address the abysmal financial situation in America today and tomorrow.
As long as the Federal Reserve can perpetually print money and investors – at least foreigners – acquire Treasury securities, there is no incentive for esteemed officials in the nation’s capital to grapple with any of these problems. Just as sure as Biden will sniff strangers’ hair, Democrats will spend with reckless abandon, and Republicans will abandon fiscal responsibility.
~ Read more from Andrew Moran.