4 Ways US Treasury Can Pay Bills Without Borrowing

A customer counts his cash at the register while purchasing an item at a Best Buy store in Flushing, New York, on March 27, 2010. REUTERS/Jessica Rinaldi

The United States has nearly reached its $31.4 trillion debt ceiling, so the Treasury must now manage the nation’s bills without resorting to borrowing.

That’s a challenge because the government operates on a deficit budget, spending more money than it takes in. Normally the Treasury borrows to cover the shortfall. But Congress places a limit on the amount of debt the country can hold.

Since the debt ceiling was reached on Jan. 19, Treasury Secretary Janet Yellen has been using “extraordinary measures” authorized by Congress to keep payments current.

U.S. Treasury Secretary Janet Yellen testifies on Capitol Hill, Washington, D.C., on June 8, 2022. Jonathan Ernst/Reuters

Though called extraordinary, these actions have been taken before when the country neared the debt ceiling.

Basically, there are four things the government can do to avoid borrowing: stop putting money into certain savings accounts and funds, move money from one government agency to another to pay the most urgent bills, and buy back some debt while issuing other kinds of debt that doesn’t count against the limit.

Though not considered extraordinary, the Treasury can take the fourth action by spending down some of its $568 billion cash reserves.

These steps are similar to things ordinary people sometimes do when they’ve maxed out a credit card but still have bills to pay: delay making pension payments, use the rent money to pay the light bill if that’s due first, or pay off one card using another.

These amount to delaying tactics, however. The money freed up by these extraordinary steps will eventually run out, and all the money withheld from various funds will have to be repaid with interest.

Steps Already Taken

In January, Yellen took two extraordinary measures that were calculated to pay the bills through early June.

On Jan. 19, she stopped issuing new securities to fund two programs for government retirees, the Civil Service Retirement and Disability Fund (CSRDF) and the Postal Service Retiree Health Benefits Fund (PSRHBF). That adds up to about $4 billion a month according to the CBO.

At the same time, the secretary stopped making semiannual interest payments to both funds, which would add up to $12 billion by Jun. 30.

On Jan. 24, Yellen stopped putting money in the Thrift Savings Plan’s G Fund, part of the Federal Employees’ Retirement System. That preserved $169 billion to pay other bills.

The Treasury has also stopped issuing State and Local Government Series securities, according to the CBO. That allows the government to trade one type of debt for another.

Still Available

Other extraordinary measures are still available, which should keep the government solvent into summer.

The Treasury could stop investing in the Exchange Stabilization Fund, an emergency fund used to regulate foreign exchange rates. The total added was $17 billion as of Jan. 31.

U.S. Department of the Treasury building, Washington, on March 27, 2020. Olivier Douliery/AFP via Getty Images

The Treasury could make an advance buy-back of securities held by the CSRDF and the PSRHBF to balance out payments due in the near future. That would free up about $8 billion a month.

Also, the Treasury could swap Federal Financing Bank securities for Treasury securities held by the CSRDF. On Jan. 31, about $10 billion in securities was available for that purpose. The FFB is a government corporation operated under the direction of the Treasury Secretary.

End Date Uncertain

How long these measures will keep the United States under the debt ceiling depends on the amount raised in taxes this spring, the CBO reported. Tax receipts vary with the state of the economy.

The larger question is when Congress will agree to raise the debt limit.

House Speaker Kevin McCarthy (R-Calif.) is using the debt ceiling to highlight what he sees as “runaway” government spending. The speaker has said he wants a “responsible” increase in the borrowing cap, which would include an agreement to limit future spending.

President Joe Biden has said he will not accept pre-conditions to raising the debt ceiling because it represents the full faith and credit of the United States.

Both have stated that they will not allow the country to default on its obligations.

After the United States faced a similar impasse over the debt ceiling in 2011, the Government Accounting Office estimated that the delay in increasing the debt ceiling resulted in additional interest and other costs totaling $1.3 billion.

The CBO has not issued a forecast for the added cost of extraordinary measures currently in use.