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Federal Debt and the Statutory Limit, October 2015 1 (October 2015)

handle is hein.congrec/cbo2568 and id is 1 raw text is: t Federal Debt and the Statutory Limit, October 2015 The debt limit-commonly referred to as the debt ceiling-is the maximum amount of debt that the Department of the Treasury can issue to the public and to other federal agencies. That amount is set by law and has been increased over the years in order to finance the government's operations. In March, the debt ceiling was reached, and the Secretary of the Treasury announced a debt issuance suspension period. During such a period, existing statutes allow the Treasury to take a number of extraordinary measures to borrow additional funds without breaching the debt ceiling. The Congressional Budget Office projects that if the debt limit remains unchanged, the Treasury will begin running a very low cash balance in early November, and the extraordinary measures will be exhausted and the cash balance entirely depleted sometime during the first half of November. At such time, the government would be unable to fully pay its obligations, a development that would lead to delays of payments for government activities, a default on the government's debt obligations, or both. CBO previously projected that those developments would occur between mid-November and early Decem- ber. The agency revised the date primarily because the Treasury's cash balance at the beginning of October was smaller than expected, the result of a larger-than-expected deficit and other variations in cash flows. What Is the Current Situation? The Temporary Debt Limit Extension Act (Public Law 113-83), enacted in February 2014, suspended the debt ceiling through March 15, 2015. The act also spec- ified that the amount of borrowing that occurred during the suspension period would be added to the previous debt limit of $17.212 trillion. Therefore, on March 16, the debt limit was reset to $18.113 trillion to match the amount of outstanding debt. Because the Temporary Debt Limit Extension Act did not provide additional borrowing authority above the amount of debt that had already been issued as of March 15, the Treasury has no room to borrow under its standard operat- ing procedures. To avoid breaching the limit, the Treasury has used extraordinary measures that allow it to continue to borrow for a limited period. Continued use of those measures, along with the regular cash inflows over the next month, should allow the Treasury to finance the govern- ment's activities for a little while longer without an increase in the debt ceiling. What Makes Up the Debt Subject to Limit? Debt subject to the statutory limit comprises two main components: debt held by the public and debt held by government accounts. Debt held by the public consists mainly of securities that the Treasury issues to raise cash to fund the operations and pay off the maturing liabilities of the federal govern- ment that tax revenues are insufficient to cover. Such debt is held by outside investors, including the Federal Reserve System. 1. For more information on federal debt, see Congressional Budget Office, Federal Debt and Interest Costs (December 2010), www.cbo.gov/publication/21960.

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