“Debt limit deadlocks have also repeatedly disrupted the implementation of Treasury Department policies — with knock-on effects for money markets,” Joshua Frost, Assistant Treasury Secretary for Financial Markets, said in a speech in December.
Mr Frost added that the Treasury usually has a daily cash balance of $600 billion to $700 billion, but there were days during the deadlock in the 2021 debt limit when it grew painfully close to zero. Such situations can force the Treasury Department to take risky actions, such as issuing same-day cash bills or executing buybacks.
“There were several instances where we didn’t have enough cash on hand to even meet our obligations for the next day,” said Mr. Frost, speaking at the Federal Reserve Bank of New York’s annual Primary Dealers Meeting. “In the course of that deadlock, Secretary Yellen wrote eight separate letters to Congress about the importance of action to address the debt cap.”
How long do extraordinary measures last?
The timeline for using these measures is uncertain.
Christopher Campbell, who served as assistant finance minister for financial institutions from 2017 to 2018, said that because there are so many variables at play, it is often difficult to give a precise estimate of the grace period between when the debt limit is exceeded and the moment when the United States may fail to fulfill its obligations.
“It depends on revenue, it depends on how the economy is doing, it depends on how businesses are doing,” said Mr. Campbell. “There are some shell games and accounting games that fit in.”
The Bipartisan Policy Center said in a 2021 report that the timing of reaching the debt limit plays a role in the duration of extraordinary measures. High government spending in February could mean X-date, when the government runs out of money, comes sooner than expected, while robust tax receipts in April could buy more time for extraordinary measures to keep the lights on.
In her letter to Congress, Ms. Yellen said ominously that “the Treasury is currently unable to provide an estimate of how long extraordinary measures will allow us to continue to pay the government’s obligations.” She then surmised that cash and extraordinary measures are unlikely to be exhausted before early June.
