Congress can't agree on raising the debt limit, just days before the government runs out of money to pay its bills.
U.S. Treasury Secretary Janet Yellen warned the government will run out of money this Thursday. She said the department will begin taking "extraordinary measures" to make sure it meets its basic obligations.
In a letter to House and Senate leaders on Friday, Yellen said her actions will buy time until Congress can pass legislation that will either raise the nation's $31.4 trillion debt limit or suspend it again for a period of time. But she said it's "critical that Congress act in a timely manner."
The debt limit is the total amount of money that the U.S. government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments, according to the Treasury Department.
The debt limit does not authorize new spending commitments. It simply allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past.
Yellen said that while Treasury can't estimate how long the extraordinary measures will allow the U.S. to continue to pay the government's obligations, "it is unlikely that cash and extraordinary measures will be exhausted before early June."
The U.S. Treasury first used extraordinary measures in 1985 and has used them at least 16 times since, according to the Committee for a Responsible Federal Budget, a fiscal watchdog.
House Republicans want the Biden administration to agree to major spending cuts before they'll vote to raise the ceiling, but the White House is refusing to negotiate.
Shai Akabas, director of economic policy at the Bipartisan Policy Center, told reporters that "this is not the time for panic, but it's certainly a time for policymakers to begin negotiations in earnest."
"Most policymakers agree that we have a major fiscal challenge as a country, our debt is unsustainable," he said, and "there's no reason why we couldn't agree on measures to improve our fiscal outcome, and also ensure that we are paying all of our bills in full and on time."
In an op-ed published by Fox News, Heritage Foundation economist Stephen Moore agreed, slamming the "economic Armageddon" scenario President Biden, Senate Majority Leader Chuck Schumer, and the Washington special interest community are sounding over the potential of the debt limit expiring.
This scenario was even echoed by Yellen and the Treasure Department in a post on its website.
"Failing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations – an unprecedented event in American history. That would precipitate another financial crisis and threaten the jobs and savings of everyday Americans – putting the United States right back in a deep economic hole, just as the country is recovering from the recent recession."
However, Moore writes, "This is upside-down logic. The nation's good credit standing in the global capital markets isn't imperiled by not passing a debt ceiling. The much-bigger danger is that Congress does extend the debt ceiling, but without any reforms in the way Congress grossly overspends."
"We just experienced one painful repercussion of runaway government spending and debt over the past year: The runaway inflation that climbed to a 40-year high – costing the average American family nearly $4,000 in a loss of real take-home pay," he continued.
"Yet Biden and the Democrats in Congress say they want a 'clean' debt ceiling bill – with no conditions attached," Moore wrote.
"The lesson is clear: if we are to make any progress on reducing the debt crisis, House Speaker Kevin McCarthy must use the debt ceiling vote as the bargaining chip to secure spending reductions and reforms," The Heritage Foundation economist argued.
House Republicans are reportedly preparing an emergency spending plan should Congress fall short.
Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents.