Treasury takes another ‘extraordinary’ step in debt limit

WASHINGTON (AP) — U.S. Treasury Secretary Janet Yellen sent a letter Tuesday to congressional leaders saying she will halt the reinvestment of some federal bonds in a government worker savings plan, a move additional “extraordinary” to buy time for President Joe Biden and Congress to raise the nation’s debt limit.

The government ran into its legal borrowing capacity last Thursday, prompting the Treasury to take accounting actions regarding federal employees’ retirement and health care plans that will allow the government to remain open until about June.

Yellen said in the letter that as of Monday it also determined that the government “will not be able to fully invest” in the government securities portion of the savings fund in the federal employees’ retirement system.

He noted that his predecessors have taken similar action in the past, noting that by law the accounts “will be completed once the debt limit is increased or suspended.”

But how the White House and Congress find common ground on the artificial cap imposed by Congress is an open question.

The US debt ceiling deadline kicks off a major political debate, with real economic consequences. (CNN, WAVE, POOL, TREASURY DEPARTMENT, HOUSE TV)

Biden and House Speaker Kevin McCarthy, Republican, have stark differences on how to raise the debt ceiling, opening the possibility that extraordinary measures will run out of steam this summer and risk a government default that could wreak economic havoc.

Senate Republican leader Mitch McConnell has said the US will not default, but it’s unclear how Biden can reconcile his insistence on a clean raise with McCarthy’s demand for spending cuts.

White House press secretary Karine Jean-Pierre said at Monday’s news conference that Biden is “happy to talk to anyone who wants to deal” with reducing the deficit in a “responsible way.”

But Jean-Pierre said that deficit reduction should not be tied to whether the US government pays its bills that it has already incurred.

“It must be done with no strings attached,” Jean-Pierre said, adding: “President Biden will never, ever allow Republicans to cut into the benefits our American workers have earned. This is what they have earned.”

McCarthy has yet to outline the scope or details of the cuts that House Republicans would like to see, though any final plan would have to be approved by the Democratic-controlled Senate and receive Biden’s signature.

“Families and businesses have to live on a budget; Washington should too,” McCarthy tweeted on Sunday.