The U.S. government bumped up against its debt limit Thursday, prompting the Treasury Department to take “extraordinary” accounting steps to avoid default.
The Treasury Department is seen near sunset in Washington, Wednesday, Jan. 18, 2023. The Treasury Department projects that the federal government on Thursday will reach its legal borrowing capacity, an artificially imposed cap that lawmakers have increased roughly 80 times since the 1960s. Markets so far remain calm, as the government can temporarily rely on accounting tweaks to stay open. – The U.S.
Markets so far remain relatively calm, given that the government can temporarily rely on accounting tweaks to stay open and any threats to the economy would be several months away. Even many worried analysts assume there will be a deal. Asked twice on Wednesday if there was evidence that House Republicans can ensure the government will avert a default, White House press secretary Karine Jean-Pierre said it's their “constitutional responsibility.” She did not say whether the White House saw signs at this stage that a default was out of the question.McCarthy said Biden needs to recognize the political realities that come with a divided government.
“America must never default on its debt," McConnell said."We’ll end up in some kind of negotiation with the administration over what are the circumstances or conditions under which the debts are going to be raised.” In order to keep the government open, the Treasury Department on Thursday was making a series of accounting maneuvers that would put a hold on contributions and investment redemptions for government workers' retirement and health care funds, giving the government enough financial space to handle its day-to-day expenses until roughly June.
The underlying challenge is that the government would have to balance its books on a daily basis if it lacks the ability to issue debt. If the government cannot issue debt, it would have to impose cuts equal in size on an annual basis to 5% of the total U.S. economy. Analysts say their baseline case is that the U.S. avoids default.
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