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The Treasury Department has asked federal agencies if they can make upcoming payments at a later date, two people familiar with the matter said, while senior Biden officials are looking for new ways to conserve cash and prevent the U.S. government from paying a fee unprecedented payment default.
With the deadline less than two weeks away, the White House is looking at ways to buy President Biden and House Speaker Kevin McCarthy (R-California) more time to reach an agreement to raise the federal debt ceiling, which will become a legal solution provides for a limit on public debt. Without additional borrowing, a renewed increase in tax revenues, or new ways to restrain spending, the federal government expects to miss a payment in early June for the first time in modern history.
House Speaker Kevin McCarthy said May 22 that he had had a “productive discussion” with President Biden over a deal to raise the debt ceiling. (Video: The Washington Post)
To delay the so-called “X-date” by which reserves will be depleted, Treasury Department officials have asked their federal counterparts about the flexibility of payments due before early June, one respondent said. The Treasury Department has not asked federal agencies to defer payments beyond their due dates, the person said.
The planning has become more and more urgent in the last few days. Last week, senior Treasury Department officials sent a memo to federal agencies, urging them to take additional steps to keep the Treasury Department accurately informed of their spending. In the memo — available to the Washington Post and not yet released — Treasury Department Assistant Secretary David A. Lebryk instructed the agency’s officials to notify the Treasury Department at least two days in advance of all “deposits and withdrawals” between US dollars to inform million and 500 million dollars. Payments over $500 million require five days’ prior notice, the memo said.
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“Please emphasize to your staff the importance of these updates during this time and ensure your agency’s reports are accurate,” the memo said. “Your reporting offices should reconcile the reported amounts with actual payment activity to ensure the reliability of these reports during the critical period.”
White House spokesmen declined to comment. A Treasury Department spokesman said: “In order to provide an accurate forecast around the debt limit, it is important that the Treasury Department has updated information on the amount and timing of payments from the authorities.” As in previous stages of the debt limit, the Treasury Department will continue to communicate regularly with all areas of the federal government about their planned spending.”
Determining the exact amount of money available for federal payments has become especially important as some Biden officials look for ways to buy more time for the high-risk debt ceiling negotiations between the White House and Capitol Hill.
In a letter to lawmakers Monday, Treasury Secretary Janet L. Yellen reiterated that Congress may only have until June 1 before the federal government exhausts its cash stash, but again predicted that the Treasury Department may have until “early June.” could hold out. Some Wall Street forecasters have said that the real X-date — the day the government finally misses a payment — is likely June 8 or 9.
With a large influx of quarterly tax payments expected to hit the Treasury coffers on June 15, administration officials are looking for ways to hoard cash and hold out a few days longer. If they make it to June 15, the increase in revenue could give the Treasury enough funds to move the X-date to July when a new round of accounting measures were available, perhaps allowing them to face the prospect on a default even further protracting the future.
“They may have a few tricks up their sleeves to get June 15,” said Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget, a Washington-based think tank. “And if they get to June 15th, they can hold out much longer.”
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The administrative officials do not rely on this strategy. Yellen insisted the only way to avoid disaster is for Congress to raise the debt ceiling before June. Independent budget experts have stressed that there is no good legal way to significantly increase the Treasury’s cash holdings.
Meanwhile, some experts fear the extension of the deadline could unintentionally create more uncertainty among lawmakers, which could ease the pressure on their rush to reach a deal to raise the $31.4 trillion debt ceiling — even if action is needed of Congress becomes increasingly important urgently.
Uncertainty about the debt ceiling has reached levels not seen in years after a slim Republican majority in the House of Representatives made a debt increase conditional on spending cuts. (Video: JM Rieger/The Washington Post)
Brian Riedl, a policy analyst at the Manhattan Institute, a libertarian-leaning think tank, said it’s unclear whether the Treasury Department can find much in the available funds rummaging through the country’s sofa cushions.
“Washington borrows $100 billion every month, and there’s little to no chance of finding a sizeable pile of cash that went unnoticed,” Riedl said.
Entering the Capitol Tuesday morning, McCarthy said the two sides remain far apart. When asked if he was close to a deal, McCarthy replied “no,” though he said it’s still possible to finalize a deal before June 1.
As questions circulate about the absolute latest date by which the United States could settle all of its bills, McCarthy said he had relied on the Treasury Department’s warning about the impending deadline. After answering questions from reporters, McCarthy entered his office. His fellow GOP negotiators – Reps Garret Graves (R-La.) and Patrick McHenry (RN.C.) – followed a few minutes later.
If the United States does indeed fall into the abyss, Biden officials are already exploring unilateral ways to avert what many economists believe will be a global economic crisis. A government official who asked to remain anonymous to describe internal government deliberations agreed that “we look under the sofa cushions”. But, the person said, “it’s a very large couch.”
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Administration officials declined to give details of the measures being considered, but outside analysts outlined some likely options.
Alec Phillips, chief U.S. policy economist at Goldman Sachs Research, pointed to “tightening a little belt” as an option where the Treasury Department could tell agencies — like the Department of Defense and the Centers for Medicare and Medicaid Services — to slow down shut down their payment submission process. That would not amount to an order to stop payments, but could slow the flow of money from the state coffers.
Such measures “do not solve their problem, but might be enough if they’re just looking for a little extra space (which is probably all they need in June),” Phillips said in an email.
The Treasury Department could also sell bonds held by some of the government’s big trust funds, such as the Social Security Trust Fund or the Highway Trust Fund. Some experts said this could raise tens of billions of dollars immediately, and the trust funds could easily be replenished once the standoff is over.
However, these ideas have their downsides.
The law requires contractors and those to whom the federal government owes money to be paid promptly. Otherwise the government would According to Riedl, there are repayment penalties that could include up to 4.6 percent interest. Federal agencies could also resist attempts to slow or halt payments, invoking a 1974 law that prohibits the executive branch from substituting its own spending priorities for decisions made by Congress.
“I don’t think any career official in any agency would take the risk of breaking the rules [that law] by intentionally delaying a payment to avoid the X-date,” said David Vandivier, who served as deputy assistant assistant secretary of state for budget and taxes in the Treasury Department’s Office of Legislative Affairs during the Obama administration and is now executive director of the Psaros Center for is Financial Markets and Policy at Georgetown University.
The Treasury could raise a few extra billion dollars by using the Treasury bonds held by the Federal Financing Bank, which help provide cheap credit for federal programs, said Shai Akabas, director of economic policy at the Bipartisan Policy Center, a DC-based think tank. But that would likely account for less than a day’s federal payments.
Akabas said other options — such as slowing payments or looting trust funds — would pose different risks. The Biden administration has resisted calls to end the debt-ceiling standoff by invoking the 14th amendment or by minting a $1 trillion coin, actions it deems risky and open to legal challenge. The current search for ways to extend the X date could also plunge the government into uncharted territory.
More dramatic options are available. Biden has the power to sell US assets like parks or federal buildings to raise money, but that would almost certainly trigger a political backlash. Dean Baker, an economist at the Center for Economic and Policy Research, has indicated that the president could sell some of the Treasury Department’s $500 billion in gold reserves.
There is no indication that either idea is being considered, although Treasury Secretary James A. Baker III threatened to sell gold bonds during a similar debt-ceiling row in the 1980s.
“There are measures they could consider, such as effectively ordering authorities to wait until they are due to issue bills, which could slow bill payment. But they would be a really big undertaking. And I’m not sure how much they would even delay the X date,” Akabas said.
He added: “We’ve done this exercise dozens of times. So if something was readily available, I think we would have heard about it.”