- [Narrator] An economic crisis is looming
and experts are sounding the alarm, afraid of-
- Self-imposed calamity.
- [Narrator] Treasury Secretary Janet Yellen
is talking about the dispute over raising the debt ceiling,
which hasn't happened yet.
- Can't be negotiated over whether or not
we're going to pay our bills.
- [Narrator] But as the countdown to potential calamity
ticks closer to zero,
the US Treasury is buying America more time
by taking so-called extraordinary measures
because if the government hits its borrowing limit-
- You have a real mess on your hands.
- [Narrator] So what are these extraordinary measures?
How do they help avoid a crisis?
And what happens when they've run out?
First, it's important to understand
what makes them extraordinary.
The Treasury pays the country's bills
by using revenue from taxes,
because it spends more than it taxes,
it makes up the difference by issuing debt
in the form of government securities.
But there is a self-imposed congressional limit
to how much of this debt the department can issue.
That's the ceiling.
- The only way to fund a deficit is to borrow more money
and until it gets rid of the deficit
that debt is going to keep rising.
- [Narrator] It's on Congress to raise that ceiling
to allow the Treasury to issue more debt,
and cover spending that lawmakers already approved,
but there's a cap on how much debt the department can issue,
that limit-
- The debt ceiling.
- If all this sudden overnight you can't borrow
any more money,
well, then you start missing payments that you've promised.
- [Narrator] This is where the Treasury comes in
with its extraordinary measures
to prevent the country from reaching the debt ceiling.
- The Treasury uses these extraordinary measures
because it's got no alternative.
If it can't borrow more money,
it's gotta find the money somewhere.
- [Narrator] So the Treasury accesses other funds
it has tucked away, pulling money from one area
to use for more pressing spending needs in another.
- Imagine that you have an envelope hidden away in a drawer
with a bunch of cash in it to deal with a crisis,
this is the envelope.
- [Narrator] But how does the Treasury get that cash?
One way is by using money it has stowed away
for its own retirees.
On January 19th, Yellen announced the Treasury
would be redeeming investments
from the Civil Service Retirement and Disability Fund
and the Postal Service Retiree Health Benefits Fund.
They're one of the tools in the envelope.
Pulling investments doesn't shut down these funds
or mean that retirees won't get their payments.
It does mean that these funds will be tapped now
while extraordinary measures continue.
Another way is by pausing investments.
On January 23rd, Yellen paused investments
in the Government Securities Investment Fund,
which is invested in short term US Treasury securities.
In addition, the Treasury can pause payments
to government funds
that don't have to immediately pay beneficiaries.
But the Treasury doesn't just take and pause
without refilling the envelope.
- Typically, after the debt ceiling is increased,
they'll borrow money from the the public,
from bond investors,
and then replenish those pension accounts
that it's taken from.
- [Narrator] However, the Treasury's extraordinary measures
are temporary meant only to tie the government over
until the debt ceiling is raised.
- The end of the day,
Congress simply has to act to raise the debt ceiling.
- House Republicans on the other hand
want to use the debt ceiling as leverage to force a debate
with Democrats about cutting spending to curb future debt.
- It doesn't matter if you sit before a four star general,
they'll tell you the debt is the greatest threat
to this nation.
- [Narrator] This has become
something of a recurring political fight.
- Let's pay our bills, not torch our economy.
- In the past, they've always raised the debt ceiling
and tried to get back to some state of normalcy.
If they run out of funds
in using these extraordinary measures,
and they haven't run the debt ceiling,
then they don't pay their bills.
- [Narrator] Yellen said that she expected them
to keep the government from hitting the debt ceiling
until early June.
If the ceiling isn't raised and the Treasury
can't meet all of its obligations, the US defaults.
It's called the X-date,
and it's never happened in American history.
So what would happen?
- Bond holders don't get paid interest,
retirees don't get paid social security funds,
contractors don't get paid for military spending,
and then you've got a real mess on your hands.
- [Narrator] That mess could cause a disaster
in financial markets.
- It is possible for markets to become quite concerned
about whether or not the US will pay its bills
before the day of reckoning comes.
- [Narrator] That could even mean
a possible credit downgrade.
- One of the last times we had a moment like this
was Standard & Poor's downgraded the AAA credit rating
on US Treasury securities.
- After witnessing a month of wrangling
over raising the debt ceiling,
they doubted our political systems' ability to act.
- There are real consequences if we get to a moment
where extraordinary measures are exhausted
and the US has no way
to continue to fund its budget deficits.
- [Narrator] The Treasury says the US won't reach the X-date
until this summer.
In the meantime, the Treasury will continue
implementing extraordinary measures
until the debt ceiling is raised
or that emergency envelope is empty.
(upbeat music)