What Are Debt-Limit Extraordinary Measures and Why Isn't the Contact Date the X-Date?
When federal debt hits the statutory limit, Treasury doesn’t run out of money right away. So what keeps the bills getting paid, and how long can that last?
Senior Fellow Matthew Dickerson explains the gap between hitting the debt limit and the X date, and why Congress shouldn’t wait for the X date to act.
Once the limit is reached, Treasury has three resources left: cash on hand in the Treasury General Account, the tax revenue that keeps coming in, and extraordinary measures. Extraordinary measures sound exotic, but they are specific accounting and debt management actions the law authorizes. Treasury can suspend new investments in certain federal employee retirement funds, such as the Thrift Savings Plan’s G Fund, or redeem some investments early. It also has authorities involving the Civil Service Retirement and Disability Fund and certain other government accounts.
Those funds normally hold special Treasury securities that count against the debt limit. Holding off on issuing those securities frees up room under the limit, which Treasury can use to issue other debt and raise cash. The affected funds don’t lose anything permanently. They are made whole once the impasse ends.
That’s why the date the debt limit is reached and the X date are different. The X date comes later, when Treasury runs out of cash, incoming revenue, and extraordinary measures to pay every federal bill on time. With hundreds of billions of dollars in payments going out each week, failing to pay bondholders, contractors, program beneficiaries, and others in full and on time would be a default.
Congress shouldn’t wait until the X date to deal with the debt limit, and it should take on the underlying fiscal outlook at the same time.
In this video:
- The resources Treasury can draw on once the debt limit is reached
- What extraordinary measures are and how they create room under the limit
- Why the affected funds are made whole
- The difference between hitting the limit and the X date, and what default would mean
More resources for Congress and congressional staff: https://fiscallab.org