How ‘Extraordinary Measures’ Can Postpone a Debt Limit Disaster

“Debt limit impasses have also repeatedly disrupted implementation of Treasury’s cash 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 usually has a daily cash balance of $600 billion to $700 billion, but that during the 2021 debt limit standoff, there were days when it grew painfully close to zero. Such situations can force the Treasury Department to undertake risky moves such as issuing same-day cash management bills or conducting buybacks.

“There were several instances when we didn’t have sufficient cash on hand to meet even our next-day obligations,” Mr. Frost, who spoke at the Federal Reserve Bank of New York’s Annual Primary Dealers Meeting, said. “During the course of that impasse, Secretary Yellen wrote eight separate letters to Congress regarding the importance of acting to address 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 often difficult to give a precise estimate of the grace period between when the debt limit is breached and when the United States potentially defaults on its obligations.

“It depends on receipts, it depends on how the economy is doing, it depends on how companies 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 role in how long extraordinary measures might last. Big government expenses in February could mean that X-date, when the government runs out of cash, comes sooner than anticipated, while robust April tax receipts could buy more time for extraordinary measures to keep the lights on.

In her letter to Congress, Ms. Yellen said ominously that “Treasury is not currently able to provide an estimate of how long extraordinary measures will enable us to continue to pay the government’s obligations.” She then surmised that it is unlikely that cash and extraordinary measures will be exhausted before early June.

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