The federal government is one step away from the limit imposed by Congress on the amount of money it can borrow.
And he will soon be forced to undertake a series of money management techniques to avoid going over the debt ceiling until Congress lifts it.
Under federal law passed in late 2021, the maximum the federal government can borrow is $31.381 trillion. The total national debt has already ventured slightly above that level, but a small portion of the debt is exempt from the debt ceiling – technically, the unamortized discount on Treasury bills. Last week, the total debt subject to the debt limit approached $31.345 billion.
That leaves the government very close to its borrowing limit at a time when congressional Democrats are eyeing a flurry of new spending before handing control of the House to Republicans in January.
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In the past, the government has been able to last for months once it hits the debt ceiling while waiting for Congress to either raise the ceiling or suspend it entirely, a move that would allow the government to borrow everything it has. need. But hitting the debt ceiling sends a warning that Congress will need to act in the near future. And approving an extension this time around could prove politically more difficult now that Republicans will control the House in the next Congress.
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Democrats would rather raise the debt ceiling in the lame session of Congress because they fear Republicans will have more leverage to push for spending cuts under a debt ceiling deal once that the GOP will take control of the House in January.
But last week, outgoing House Speaker Nancy Pelosi, D-Calif., indicated that an increase in the debt ceiling may have to wait.
“I hope we can do the debt ceiling this year, but we are trying to do it in a bipartisan way,” she said.
House Minority Leader Kevin McCarthy, R-Calif., has indicated that Republicans will push for a commitment to slow federal spending growth or find spending cuts as a condition for approving a debt ceiling increase. . Republicans and many economists have said excessive federal spending has increased demand in the economy and caused inflation, which the Federal Reserve is trying to curb by raising interest rates.
“We can’t continue down this path,” McCarthy said in October when asked about high levels of federal spending.
BIDEN BRAG’S DEFICIT REDUCTION MASKS A COLOSSAL WAVE OF NEW SPENDING
Even as the United States nears its debt ceiling, President Biden continues to brag about how the annual budget deficit has shrunk under his leadership from $2.8 trillion in fiscal year 2021. to approximately $1.4 trillion in fiscal year 2022. This lower deficit primarily reflects higher federal revenues and significantly less COVID pandemic emergency spending compared to 2020 and 2021.
Overall spending levels remain high, and budget watchers say it will be difficult to further reduce the budget deficit in light of Biden’s expanded spending priorities. The government spent $4.4 trillion in 2019, the year before the pandemic, but spent $6.5 trillion in 2020, $6.8 trillion in 2021 and $6.3 trillion in 2022. And it’s likely to continue spending more than $6 trillion a year, barring major spending cuts.
Treasury Secretary Janet Yellen will likely notify Congress in the coming days that the debt ceiling has been reached and advise how long the government can continue to operate without exceeding the ceiling. Staying below that limit will be through what the Treasury calls “extraordinary measures.”
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In the past, these measures have included halting the issuance of state and local government securities and temporarily halting investments in federal employee retirement and disability plans. The Treasury may also suspend other routine investments and the issuance of other securities and cash in securities it holds earlier than expected to raise funds.
The Treasury’s goal is to keep the total national debt at least $25 million below the debt ceiling.
The Treasury’s stated position is that raising the debt ceiling does not authorize new spending commitments and instead allows the government to fund current obligations already approved by Congress. But a higher debt ceiling gives the government the ability to make new commitments that were not anticipated by Congress.
For example, Biden approved a student loan this summer that cost the government more than $400 billion, months after the debt ceiling was raised.
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When Congress addresses the issue, it will have the option of setting a new debt ceiling or suspending it, or – theoretically – dramatically reducing spending to stay under the current ceiling. When asked in mid-October if he would support eliminating the debt ceiling altogether, President Biden replied, “No, that would be irresponsible.”
In early October, the national debt reached $31 trillion for the first time ever.
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