Treasury Department To Use Extraordinary Measures To Conserve Cash

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Treasury Secretary Janet Yellen warned on Friday that the federal government would hit its spending limit on Sunday, prompting the department to take emergency steps to conserve cash.

The reigning in on spending comes after the debt ceiling expired at the end of July, but Yellen warned that Congress failed to act by Monday would have dire consequences.

She said in a letter to Congress obtained by Agence France-Presse: “If Congress has not acted to suspend or increase the debt limit by Monday, Aug. 2, 2021, Treasury will need to start taking certain additional extraordinary measures in order to prevent the United States from defaulting on its obligations.”

U.S. spending has soared during the pandemic amid three relief bills intended to provide aid from the economic impact of COVID.

According to the Congressional Budget Office, the national debt at the end of June was $28.5 trillion, with the year’s budget deficit sitting at $3 trillion.

Economists say the extraordinary measure that the Treasury planned will allow the government to pay off its bills without accruing new debt for two to three months without raising or suspending the borrowing limit, or the U.S. could default on their obligations, CNBC noted.

The federal government has never defaulted, but economists have said that it could have devastating effects on the U.S. economy if it were to happen, causing interest rates to spike.

Through the extraordinary measures, the Treasury is allowed to redeem investments that include federal pension programs to generate funds, it can also cease other programs unless the government picks up new Treasury bonds, payments on Social Security, Medicare, military spending, interest on U.S. debt, or stops other financial obligations, according to CNBC.

“We’ve implemented extraordinary measures before, so from a procedural standpoint this isn’t much of a concern," Lindsey Piegza, chief economist at Stifel, told CNBC.

“However, the implication is a further showdown in Washington eroding the average American’s confidence in a cohesive, functioning government. It also highlights the ongoing infighting among policy officials which will make it more difficult for the two sides to come together on anything from spending to infrastructure to the debt ceiling.”

Compounding the issue is a $3.5 trillion domestic spending bill that Democrats are looking to get passed later this year.

It is unclear which measures Congress will use as part of its cash conservation plans.