WASHINGTON—The federal government will most likely run out of cash to pay its bills in October or November unless Congress increases or suspends the federal borrowing limit, the Congressional Budget Office said Wednesday.
Congress voted two years ago to suspend the debt ceiling through July 31. If lawmakers can’t reach another agreement before then, the borrowing limit would automatically be reinstated, and the Treasury wouldn’t be able to raise additional cash from the sale of government securities.
If it can’t raise new cash, the Treasury has said it would take extraordinary measures to keep paying the government’s bills in full and on time, as it has in the past. Those measures, such as redeeming certain investments in federal pension programs and suspending new investments in those programs, have previously freed up enough cash to last several months.
But Treasury officials have warned Congress that such measures could be exhausted more quickly than in the past. Secretary
said in a June hearing that the pandemic has increased uncertainty about the size and timing of government spending, adding that the Treasury could run out of room to pay the government’s bills as early as August.
At that point, the Treasury could begin to miss payments on its obligations to bondholders, Social Security beneficiaries and veterans and default on the debt.
Democrats chose not to include a debt-ceiling increase in President Biden’s $1.9 trillion coronavirus relief package, which was passed in March. That means lawmakers will have to include a debt-limit increase or suspension in other legislation.
A full default by the U.S. government has never occurred. But fights over the debt ceiling have occasionally rattled investors. In 2011, when Republicans demanded policy changes in exchange for a higher debt limit, stock prices fell amid the uncertainty, and Standard & Poor’s downgraded the U.S. debt rating.
(More to come.)
Write to Paul Kiernan at [email protected]
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