Biden Admin Plans to Borrow Another $1.2 Trillion Amid Debt Ceiling Standoff

By Ingólfur Stefánsson
Ingólfur Stefánsson
Ingólfur Stefánsson
January 31, 2023Updated: January 31, 2023

The U.S. Department of the Treasury said on Monday that it expects to borrow $1.2 trillion over the first half of the year, broken down by $932 billion in the first quarter and $278 billion in the second quarter, the agency said.

In the last three months of 2022, the Treasury borrowed $373 billion and ended the quarter with a cash balance of $447 billion, after initially estimating in October that it would borrow $550 billion and have a cash balance $700 billion during that period.

The $177 billion difference in borrowing resulted primarily from the lower end-of-quarter cash balance, somewhat offset by lower net fiscal flows, according to the Treasury’s press release.

Benjamin Harris, assistant secretary for economy policy for the Treasury Borrowing Advisory Committee, said in a statement on Monday that the U.S. economy showed resilience in the fourth quarter of 2022 with a 2.9 percent growth in real gross domestic product. He claimed the job market was strong, with employers adding 247,000 payroll jobs monthly, and that the unemployment rate returned to a 50-year low of 3.5 percent.

Harris claims that inflation has continued to slow since peaking in June 2022. Twelve-month headline inflation, as measured by the consumer price index, has fallen by 2.6 percentage points, owing to sharp drops in energy prices and moderating non-energy goods inflation over the second half of the year.

“Core inflation (excluding food and energy) slowed by less than headline, largely due to elevated shelter inflation—though timely measures of house prices and rents suggest a reprieve in the coming year. Housing markets showed considerable weakening, correcting from pandemic-related imbalances and responding to tighter monetary policy,” he wrote.

Harris said the economy will face several challenges in 2023, including how to address the debt ceiling, the fallout from COVID-19, inflation, higher interest rates, and geopolitical events.

The United States reached its statutory debt limit of $31.4 trillion on Jan. 19. As a result, the Treasury Department began taking “extraordinary measures” to prevent the United States from defaulting on its obligations.

“These measures are expected to be exhausted sometime after early June 2023. Even just the threat that the U.S. government might fail to meet its obligations may cause severe harm to the economy by eroding household and business confidence, injecting volatility into financial markets, and raising the cost of capital—among other negative impacts,“ Harris said.

Biden Admin Rules Out Prioritizing Payments

The current debt limit drama in Washington has led to speculation on Wall Street that the United States will use a fallback option to ensure payment to its lenders if Congress does not raise the borrowing limit.

The idea of prioritizing payments to bondholders has historical roots, but the Biden administration has ruled it out because officials don’t think it would prevent an economic crisis. The administration is not planning for prioritization, and Treasury Secretary Janet Yellen has stated that such an approach would not prevent a debt default in the eyes of markets.

“Treasury systems have all been built to pay all of our bills when they’re due and on time, and not to prioritize one form of spending over another,” Yellen told reporters recently.

Additional financing details relating to the Treasury’s quarterly refunding will be released Wednesday at 8:30 a.m.

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