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    How the G7 Oil Price Cap Has Helped Choke Revenue to Russia

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    Group of 7 leaders are prepared to celebrate the results of a novel effort to stabilize global oil markets and punish Moscow.In early June, at the behest of the Biden administration, German leaders assembled top economic officials from the Group of 7 nations for a video conference with the goal of striking a major financial blow to Russia.The Americans had been trying, in a series of one-off conversations last year, to sound out their counterparts in Europe, Canada and Japan on an unusual and untested idea. Administration officials wanted to try to cap the price that Moscow could command for every barrel of oil it sold on the world market. Treasury Secretary Janet L. Yellen had floated the plan a few weeks earlier at a meeting of finance ministers in Bonn, Germany.The reception had been mixed, in part because other countries were not sure how serious the administration was about proceeding. But the call in early June left no doubt: American officials said they were committed to the oil price cap idea and urged everyone else to get on board. At the end of the month, the Group of 7 leaders signed on to the concept.As the Group of 7 prepares to meet again in this week in Hiroshima, Japan, official and market data suggest the untried idea has helped achieve its twin initial goals since the price cap took effect in December. The cap appears to be forcing Russia to sell its oil for less than other major producers, when crude prices are down significantly from their levels immediately after Russia’s invasion of Ukraine.Data from Russia and international agencies suggest Moscow’s revenues have dropped, forcing budget choices that administration officials say could be starting to hamper its war effort. Drivers in America and elsewhere are paying far less at the gasoline pump than some analysts feared.Russia’s oil revenues in March were down 43 percent from a year earlier, the International Energy Agency reported last month, even though its total export sales volume had grown. This week, the agency reported that Russian revenues had rebounded slightly but were still down 27 percent from a year ago. The government’s tax receipts from the oil and gas sectors were down by nearly two-thirds from a year ago.Russian officials have been forced to change how they tax oil production in an apparent bid to make up for some of the lost revenues. They also appear to be spending government money to try to start building their own network of ships, insurance companies and other essentials of the oil trade, an effort that European and American officials say is a clear sign of success.“The Russian price cap is working, and working extremely well,” Wally Adeyemo, the deputy Treasury secretary, said in an interview. “The money that they’re spending on building up this ecosystem to support their energy trade is money they can’t spend on building missiles or buying tanks. And what we’re going to continue to do is force Russia to have these types of hard choices.”Some analysts doubt the plan is working nearly as well as administration officials claim, at least when it comes to revenues. They say the most frequently cited data on the prices that Russia receives for its exported oil is unreliable. And they say other data, like customs reports from India, suggests Russian officials may be employing elaborate deception measures to evade the cap and sell crude at prices well above its limit.“I’m concerned the Biden administration’s desperation to claim victory with the price cap is preventing them from actually acknowledging what isn’t working and taking the steps that might actually help them win,” said Steve Cicala, an energy economist at Tufts University who has written about potential evasion under the cap.The price cap was invented as an escape hatch to the financial penalties that the United States, Europe and others announced on Russian oil exports in the immediate aftermath of the invasion. Those penalties included bans preventing wealthy democracies from buying Russian oil on the world market. But early in the war, they essentially backfired. They drove up the cost of all oil globally, regardless of where it was produced. The higher prices delivered record exports revenues to Moscow, while driving American gasoline prices above $5 a gallon and contributing to President Biden’s sagging approval rating.A new round of European sanctions was set to hit Russian oil hard in December. Economists on Wall Street and in the Biden administration warned those penalties could knock oil off the market, sending prices soaring again. So administration officials decided to try to leverage the West’s dominance of the oil shipping trade — including how it is transported and financed — and force a hard bargain on Russia.Oil tankers near the port city of Nakhodka, Russia. Many analysts were concerned that a price cap might prompt Russia to restrict how much oil it pumped and sold. But the country has mostly kept producing at about the same levels it did when the war began.Tatiana Meel/ReutersUnder the plan, Russia could keep selling oil, but if it wanted access to the West’s shipping infrastructure, it had to sell at a sharp discount. In December, European leaders agreed to set the cap at $60 a barrel. They followed with other caps for different types of petroleum products, like diesel.Many analysts were skeptical it could work. A cap that was too punitive had the potential to encourage Russia to severely restrict how much oil it pumps and sells. Such a move could drive crude prices skyward. Alternatively, a cap that was too permissive might have failed to affect Russian oil sales and revenues at all.Neither scenario has happened. Russia announced a modest production cut this spring but has mostly kept producing at about the same levels it did when the war began.Fatih Birol, the executive director of the International Energy Agency, has called the price cap an important “safety valve” and a crucial policy that has forced Russia to sell oil for far less than international benchmark prices. Russian oil now trades for $25 to $35 a barrel less than other oil on the global market, Treasury Department officials estimate.“Russia played the energy card, and it didn’t win,” Mr. Birol wrote in a February report. “Given that energy is the backbone of Russia’s economy, it’s not surprising that its difficulties in this area are leading to wider problems. Its budget deficit is skyrocketing as military spending and subsidies to its population largely exceed its export income.”Biden administration officials say that there is no evidence of widespread evasion by Russia, and that Mr. Cicala’s analysis of Indian customs reports does not account for the rising cost of transporting Russian oil to India, which is embedded in the customs data. A White House official told reporters traveling with Mr. Biden in Hiroshima on Thursday that the Group of 7 leaders would adopt new measures meant to counter price-cap evasion in their meeting this weekend.There is no dispute that the world has avoided what was privately the largest concern for Biden officials last summer: another round of skyrocketing oil prices.American drivers were paying about $3.54 a gallon on average for gasoline on Monday. That was down nearly $1 from a year ago, and it is nowhere near the $7 a gallon some administration officials feared if the cap had failed to prevent a second oil shock from the Russian invasion. Gas prices are a mild source of relief for Mr. Biden as high inflation continues to hamper his approval among voters.After rising sharply in the months surrounding the Russian invasion, global oil prices have fallen back to late-2021 levels. The plunge is partly driven by economic cooling around the world, and it has persisted even as large producers like Saudi Arabia have curtailed production.Falling global prices have contributed to Russia’s falling revenues, but they are not the whole story. Reported sales prices for exported Russian oil, known as Urals, have dropped by twice as much as the global price for Brent crude.The Group of 7 leaders meeting in Japan this week will probably not spend much time on the cap, instead turning to other collective efforts to constrict Russia’s economy and revenues. And the biggest winners from the cap decision will not be at the summit.“The direct beneficiaries are mostly emerging market and lower-income countries that import oil from Russia,” Treasury officials noted in a recent report.The officials were referring to a handful of countries outside the Group of 7 — particularly India and China — that have used the cap as leverage to pay a discount for Russian oil. Neither India nor China joined the formal cap effort, but it is their oil consumers who are seeing the lowest prices from it. More

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    When Will the U.S. Run Out of Cash? The Answer Is Complicated.

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    The federal government is essentially living paycheck to paycheck, making the X-date hard to pin down.In letters to Congress and warnings to business leaders about the catastrophic consequences if the United States defaults on its debt, Treasury Secretary Janet L. Yellen has repeatedly offered an important caveat.She cannot give the exact date when the federal government will run out of cash.The United States reached its statutory $31.4 trillion debt limit on Jan. 19, forcing the Treasury Department — which borrows huge sums of money to pay nation’s bills — to begin using accounting maneuvers known as extraordinary measures to conserve cash and avoid breaching the cap.On Monday, Ms. Yellen reiterated previous warnings that the Treasury Department could deplete its cash reserves by June 1. Still, the exact day when the United States will reach the so-called X-date is nearly impossible to determine.“These estimates are based on currently available data, and federal receipts, outlays and debt could vary from these estimates,” Ms. Yellen has told lawmakers in her letters. “The actual date Treasury exhausts extraordinary measures could be a number of days or weeks later than these estimates.”While Treasury has the most sophisticated cash management system in the world and employs teams of highly trained economists, its coffers are a blur of payments going out and tax revenues coming in. When its cash balance runs painfully low — as was the case on Wednesday, when the Treasury General Account started the day with less than $100 billion — pinpointing the X-date becomes even harder to predict. In many respects, that is because the moment that a default would occur is a moving target.Big bills are coming due.Ms. Yellen has been eyeing early June as a pivotal month since her first warnings to Congress about the debt limit in January. The reason: The federal government spends a lot of money in a short period of time around June 1, and it is impossible to predict exactly how much revenue is going to be coming in and when.In a report published on Thursday, the Bipartisan Policy Center, a think tank that carefully tracks federal spending, estimated that the government would spend $101 billion on June 1. Most of that money — $47 billion — will go toward Medicare, while the rest will be directed to veterans’ benefits, military pay and retirement, civil service retirement and supplemental security income. On June 2, the government has to pay $25 billion in Social Security benefits and another $2 billion for Medicaid.During those two days, the government is projected to spend about $140 billion and bring in only $44 billion in tax revenue, leaving the nation’s coffers operating on fumes.Revenues sputter as refunds flow.One big problem this year is that tax revenues have been coming in at a more tepid pace than anticipated.Severe storms, flooding and mudslides in California, Alabama and Georgia this year prompted the Internal Revenue Service to push the April 18 tax-filing deadlines in dozens of counties to October.Another surprising reason that cash is running lower than some budget experts projected is that the I.R.S. is starting to operate more efficiently. As a result of the $80 billion that the agency received as part of the Inflation Reduction Act last year, it has been able to ramp up hiring and chip away at the backlog of unprocessed tax returns.Because the I.R.S. has been processing returns more quickly, it is also paying out refunds more quickly and draining the amount of available cash.June 15 is a critical day.If Ms. Yellen can find enough coins in Treasury’s couch to pay the bills until June 15, the United States could find itself with a bit of breathing room.That is because June 15 is when third-quarter payments are due from corporations and people who are required to pay their tax bills throughout the year or choose to make payments every three months to avoid having large bills due in April.The Congressional Budget Office said in a report last week that an expected influx of quarterly tax receipts on June 15 and the availability of additional extraordinary measures would probably allow the government to continue financing operations through at least the end of July.The government could receive approximately $80 billion in tax revenue that day. The Bipartisan Policy Center estimates that those funds could be sufficient to keep the federal government afloat until June 30. At that time, Ms. Yellen would also have some additional extraordinary measures at her disposal — a suspension of investments into retirement funds for federal workers — that would allow her to unlock an additional $145 billion and potentially delay a default until well into July.It’s too close to call.The lack of clarity about the X-date has made it difficult for lawmakers to know how much pressure they are under to strike a deal. The government may not know how quickly cash is running out until right before the country faces default.But pressure is still mounting. Congress is likely to take days — if not weeks — to pass legislation to raise the debt ceiling. And even if President Biden and Speaker Kevin McCarthy strike an agreement, there is no guarantee that the House and Senate will easily pass the legislation.The legislative calendar gets increasingly complicated as summer approaches.Mr. McCarthy and Senator Chuck Schumer, Democrat of New York and the majority leader, would need to navigate legislation reflecting that agreement through their respective chambers, and the days left to do so are rapidly dwindling. The House is scheduled to be in session for only six days before the end of the month. The Senate is set for just five and is scheduled to be out of Washington beginning on Monday before the Memorial Day weekend.Mindful that lawmakers are loathe to reschedule their recesses, analysts have been watching the legislative schedule closely as they try to read the debt limit tea leaves. If no deal is signed into law by Memorial Day and Ms. Yellen does not announce that the X-date is delayed, that could raise the likelihood of a short-term suspension of the borrowing cap to give Congress more time to act.“The congressional calendar is king and will dictate urgency and passage dates for a bill, as has historically been the case,” Henrietta Treyz, the director of economic policy at Veda Partners, said in a note to clients this month. More

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    Biden Expresses Optimism on Debt Limit, but a Deal Remains Elusive

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    President Biden and congressional leaders will resume face-to-face talks on Tuesday to raise the debt limit and avoid a default.President Biden and congressional leaders will resume face-to-face talks on Tuesday to avert a government default, with the White House expressing cautious optimism as the contours of a possible deal began to come into focus.With time running out to strike a deal to raise the debt limit, broad areas of negotiation have emerged, including fixed caps on federal spending, reclaiming unspent funds designated for the Covid-19 emergency, stiffer work requirements for federal benefits and expedited permitting rules for energy projects.“I remain optimistic because I’m a congenital optimist,” Mr. Biden told reporters on Sunday in Rehoboth Beach, Del. He added, “I really think there’s a desire on their part, as well as ours, to reach an agreement, and I think we’ll be able to do it.”Still, on Monday, Speaker Kevin McCarthy reiterated that he believed little progress had been made, telling reporters that the two sides remained “far apart” even with a potential default looming. “We have no agreements on anything. That’s why I’m so concerned,” he added.Treasury Secretary Janet L. Yellen reiterated on Monday that the United States could be unable to pay its bills by June 1 if it does not raise or suspend the debt limit, which caps how much money the country can borrow.That $31.4 trillion limit was hit on Jan. 19, and the Treasury Department has been using accounting maneuvers to keep paying the government’s bills. In a letter to lawmakers on Monday, Ms. Yellen cautioned that the actual date “could be a number of days or weeks later than these estimates” but she urged Congress to move quickly to prevent a default.The Treasury Department has been using accounting maneuvers known as extraordinary measures to keep paying the country’s bills without breaching the debt ceiling.Republicans have said they want to cut federal spending before lifting the ceiling, but Mr. Biden has maintained that negotiating over cuts must not be a condition for raising the limit and avoiding what could be a catastrophic default.Economists on Wall Street and in the White House say a prolonged default could obliterate jobs and lead the country into a recession.Mr. Biden, who is set to depart on Wednesday for Japan to attend the Group of 7 meeting, confirmed on Monday that he would meet with Mr. McCarthy on Tuesday. The meeting will be at 3 p.m., according to the White House.Senator Chuck Schumer of New York, the majority leader, was more optimistic than Mr. McCarthy on Monday, saying that the “parallel discussions” on federal spending and the debt ceiling were continuing in “a very serious way.”“We welcome a bipartisan debate about our nation’s fiscal future,” Mr. Schumer said. “But we’ve made it plain to our Republican colleagues that default is not an option. Its consequences are too damaging, too severe. It must be taken off the table.”The two sides had their first face-to-face meeting at the White House last Tuesday, but it ended without a deal. They had been set to meet again on Thursday, but that session was postponed to allow staff members more time to speak in detail.People familiar with the negotiations cast the decision to postpone that meeting as a positive development, one that would give staff members more time to make progress.“The conversations are constructive between all of the parties,” said Wally Adeyemo, the deputy Treasury secretary.“The United States has never defaulted on its debt, and we can’t,” Mr. Adeyemo said. “Because defaulting on our debt isn’t just about financial markets. It’s about paying our Social Security recipients. It’s about paying our troops. It’s about paying the men and women who are working the border today.”Biden administration officials have said they will not accept any deal that rolls back the president’s signature legislative achievements, particularly on climate change. They want Republicans to drop certain provisions in the debt limit bill that passed the House last month.That measure is dead on arrival in the Democratic-led Senate, but the details are a signal of the Republicans’ negotiating position with the White House.The bill would make able-bodied adults without dependents who receive both federal food assistance and Medicaid benefits subject to work requirements until they are 55 years old, an increase from 49. It also seeks to close a loophole that Republicans have claimed is abused by states, which allows officials to exempt food assistance recipients from work requirements.Asked if he was open to tougher work requirements for aid programs, Mr. Biden said over the weekend that had voted for such measures as a senator, “but for Medicaid it’s a different story.”Michael Kikukawa, a White House spokesman, said Mr. Biden “has been clear that he will not accept proposals that take away people’s health coverage.”“The president has been clear he will not accept policies that push Americans into poverty,” Mr. Kikukawa said.Conservatives had initially pushed to tighten those work requirements even further, but more mainstream Republicans in competitive districts balked.Alan Rappeport More

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    U.S. Faces ‘Significant Risk’ of Running Out of Cash in June, Budget Office Warns

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    A default would cause financial distress, economic disruptions and rapid increases in borrowing rates, the nonpartisan Congressional Budget Office said.The Congressional Budget Office said on Friday that there was a “significant risk” that the federal government could run out of cash sometime in the first two weeks of June, setting the United States up for a default.The warning came as the White House and congressional leaders spent the week in negotiations over how to raise the $31.4 trillion borrowing cap. The Treasury Department has been using accounting maneuvers known as extraordinary measures to keep paying the country’s bills without breaching that debt ceiling, which was officially reached on Jan. 19. But the department has said those tools could be exhausted as soon as June 1.The nonpartisan budget office outlined the fiscal strain facing the government as the legislative standoff continues. It also noted that the timing and revenue coming into the government, as well as its expenditures, were hard to predict.“If the debt limit is not raised or suspended before the Treasury’s cash and extraordinary measures are exhausted, the government will have to delay making payments for some activities, default on its debt obligations, or both,” the Congressional Budget Office said in a report released on Friday.It predicted that a default would lead to “distress in credit markets, disruptions in economic activity and rapid increases in borrowing rates for the Treasury.”Treasury Secretary Janet L. Yellen warned this week that the consequences of a default would be dire.“A default would threaten the gains that we’ve worked so hard to make over the past few years in our pandemic recovery,” she said at a news conference in Japan on Thursday before a gathering of Group of 7 finance ministers. “And it would spark a global downturn that would set us back much further.”The day the United States runs out of cash — known as the X-date — could come later this summer. The budget office said that if the Treasury Department had sufficient funds to make it through June 15, an influx of quarterly tax receipts and additional extraordinary measures at its disposal would most likely allow the government to keep paying its bills through “at least the end of July.”President Biden and the four top congressional leaders, including Speaker Kevin McCarthy, were originally scheduled to meet again on Friday to discuss the debt limit after an initial face-to-face session on Tuesday produced no agreement. The second meeting is now expected to take place next week, before Mr. Biden departs on Wednesday for Japan to attend the G7 leaders’ meeting. In the interim, staff from both sides are continuing to try to reach some type of deal to avert a default.While the decision to delay the meeting was viewed as a positive development that could allow both sides to reach consensus, it remains unclear whether an agreement can be reached in time. Mr. McCarthy has insisted on deep spending cuts and a rollback of Mr. Biden’s clean energy agenda as a prerequisite to raising the debt limit. The president has insisted that Republicans raise the borrowing cap, arguing that it simply allows the United States to pay bills that Congress has already approved.Karine Jean-Pierre, the White House press secretary, said on Friday that the meeting was delayed so that the administration and congressional staff could continue their private discussions over a plan to raise the debt limit. While the White House continued to insist that raising it is not negotiable, she said, the president was willing to discuss other spending and budget matters with Republicans.“The meetings have been productive over the last few days,” Ms. Jean-Pierre said, adding that there was “a lot of urgency” to find a solution that prevents a default.The nation’s long-term fiscal outlook continues to be problematic and could only harden the Republican position that the government must rein in spending. In a separate report released on Friday, the Congressional Budget Office said it projected a federal budget deficit of $1.5 trillion this year — slightly higher than its forecast in February. Annual deficits are projected to nearly double over the next decade, totaling more than $20 trillion through 2033. More

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    The Debt Limit Workarounds: The Coin, the Constitution, Premium Bonds

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    As Congress hurtles toward a debt limit showdown, ways to work around it are garnering attention.Move over, trillion-dollar coin, there is a new debt limit workaround in town — and this one sounds more sophisticated, which some of its proponents have suggested could make it more likely to work.For years, debt limit skeptics have argued that the United States can get around the cap on how much it can borrow by minting a large-denomination coin, depositing it in the government’s account at the Federal Reserve. Officials could then use the resulting money to pay the country’s bills. The maneuver would exploit a quirk in U.S. law, which gives the Treasury secretary wide discretion when it comes to minting platinum coins.But there have always been challenges with the idea: Treasury has expressed little appetite. It is unclear whether the Fed would take the coin. It just sounds unconventional to the point of absurdity. And now, some are arguing for a fancier-sounding alternative: premium bonds.The government typically funds itself by issuing debt in the form of financial securities called bonds and bills. They are worth a set amount after a fixed period of time — for example, $1,000 in 10 years — and they pay “coupons” twice a year in between. Typically, those coupon rates are set near market interest rates.But in the premium bond idea, the government would renew old, expiring bonds at higher coupon rates. Doing so would not technically add to the nation’s debt — if the government previously had a 10-year bond worth $1,000 outstanding, it would still have a 10-year bond worth $1,000 outstanding. But investors would pay more to hold a bond that pays $7 a year than one that pays $3.50, so promising a higher interest rate would allow Treasury to raise more money.Would those higher interest rates, which would cost the government more money, pose a problem? Not technically. The debt limit applies to the face value of outstanding federal government debt ($1,000 in our example), not future promises to pay interest.And the idea could also come in a slightly different flavor. The government could issue bonds that pay regular coupons, but which never pay back principal, or perpetual bonds. People would buy them for the long-term cash stream, and they would not add to the principal of debt outstanding.The premium bond idea has gained support from some big names. The economic commentator Matthew Yglesias brought it up in January, the Bloomberg columnist Matt Levine has written about it, and The New York Times columnist and Nobel-winning economist Paul Krugman made a case for it this week.But even some proponents of premium bonds acknowledge that it could face legal challenges or damage the United States’ reputation in the eyes of investors. Plus, their design and issuance would have to happen fast.“Normally, Treasury makes changes slowly, with lots of consulting of bond market participants and advance announcement of auctions,” said Joseph E. Gagnon, an economist at the Peterson Institute for International Economics, adding that the government might have to offer a discount.But, he added, it “sure beats defaulting” and he “would argue it is better than not paying workers or retirees.”While the premium bond idea might come in different packaging, it has a lot of similarities with the coin idea. Either plan would exploit a loophole to add to government coffers without actually lifting the debt limit. Because both are seen as gimmicky, it could be hard for either to become reality.Of all the options the government could use to unilaterally get around the debt ceiling, “they are the least likely in our opinion,” said Chris Krueger, a policy analyst at TD Cowen.But a workaround that hinges on the 14th Amendment could garner broader support, Mr. Krueger said. That would leverage a clause in the Constitution that says that the validity of public debt should not be questioned.Some legal scholars contend that language overrides the statutory borrowing limit, which currently caps federal debt at $31.4 trillion. The idea is that the government’s responsibility to pay what it owes would trump the debt limit rules — so the debt limit could be ignored.It would not be a perfect solution: The move would draw an immediate court challenge and could sow uncertainty in the bond market, even its proponents acknowledge. Still, some White House officials have looked into the option. More

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    ‘There Are No Good Options’: The U.S. Is Running Out of Money

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    Treasury is running out of cash, leaving little time to resolve a debt ceiling standoff that could result in default.President Biden and Speaker Kevin McCarthy will meet on Tuesday afternoon to discuss budget priorities and raising the debt limit at a precarious moment: The United States is quickly running out of cash to pay its bills.Lawmakers have less than a month to pass legislation to increase or suspend the debt ceiling, which caps the amount of money the government can borrow. The United States reached its statutory $31.4 trillion debt limit on Jan. 19, and the Treasury Department estimates that the accounting maneuvers it has been employing to prop up its cash reserves could be exhausted as soon as June 1.If the debt ceiling is not raised before the government runs out of cash — what is known as the X-date — it could be unable to pay all its bills on time, including military salaries, payments to bondholders and Social Security checks. Barring a solution, millions of Americans could stop receiving government benefits, stock markets could plunge, and a constitutional crisis could ensue.The Bipartisan Policy Center, a think tank that tracks the nation’s cash reserves, warned on Tuesday that the X-date was likely to be between early June and early August. It said that economic risks would start to surge before the money ran out and that meeting the nation’s financial obligations would soon become increasingly difficult.“The coming weeks are critical for assessing the strength of government cash flows,” said Shai Akabas, the director of economic policy at the Bipartisan Policy Center. “If a solution is not reached before June, policymakers may be playing daily Russian roulette with the full faith and credit of the United States, risking financial disaster for their constituents and the country.”A default could come sooner than expected because tax revenues have been trickling into the government’s coffers this spring. The sluggish pace is due in part to a decision by the Internal Revenue Service to give taxpayers in states that were affected by severe weather more time to file their 2022 taxes.The brinkmanship has renewed questions about how the federal government might try to prioritize certain payments if it does run out of cash, whether Mr. Biden could ignore the debt limit entirely and order the Treasury Department to continue borrowing, and if far-fetched ideas such as minting a $1 trillion coin could in fact be viable.Treasury Secretary Janet L. Yellen said on Monday that if the debt limit was not raised, then Mr. Biden would have to decide how to proceed.“I would say that if Congress doesn’t raise the debt ceiling, the president will have to make some decisions about what to do with the resources that we do have,” Ms. Yellen said on CNBC. “And there are a variety of different options, but there are no good options.”She added that failing to raise or suspend the debt limit would be an “economic catastrophe” and assailed Republicans for holding the economy hostage.“It’s a gun to the head of the American people and the American economy,” Ms. Yellen said.Mr. Biden and Mr. McCarthy will be joined by Senator Chuck Schumer of New York, the majority leader, and Senator Mitch McConnell of Kentucky, the minority leader. Ms. Yellen is traveling to Japan on Tuesday for a gathering of finance ministers of the Group of 7 nations and will not be participating in the meeting at the White House.The Biden administration and lawmakers are under growing pressure from business groups to find a way to avoid a default.“A default would deliver a severe blow to the economy, leading to widespread job losses, decimated retirement savings and higher borrowing costs for families, businesses and the government,” said Joshua Bolten, the chief executive of the Business Roundtable. “Failing to raise the debt limit would also threaten the U.S. dollar’s central role in the global financial system to the benefit of China.”He added: “Securing a bipartisan path forward to raise the debt ceiling could not be more urgent.” More

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    Is the Debt Limit Constitutional? Biden Aides Are Debating It.

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    As the government heads toward a possible default on its debt as soon as next month, officials are entertaining a legal theory that previous administrations ruled out.A standoff between House Republicans and President Biden over raising the nation’s borrowing limit has administration officials debating what to do if the government runs out of cash to pay its bills, including one option that previous administrations had deemed unthinkable.That option is effectively a constitutional challenge to the debt limit. Under the theory, the government would be required by the 14th Amendment to continue issuing new debt to pay bondholders, Social Security recipients, government employees and others, even if Congress fails to lift the limit before the so-called X-date.That theory rests on the 14th Amendment clause stating that “the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”Some legal scholars contend that language overrides the statutory borrowing limit, which currently caps federal debt at $31.4 trillion and requires congressional approval to raise or lift.Top economic and legal officials at the White House, the Treasury Department and the Justice Department have made that theory a subject of intense and unresolved debate in recent months, according to several people familiar with the discussions.It is unclear whether President Biden would support such a move, which would have serious ramifications for the economy and almost undoubtedly elicit legal challenges from Republicans. Continuing to issue debt in that situation would avoid an immediate disruption in consumer demand by maintaining government payments, but borrowing costs are likely to soar, at least temporarily.Still, the debate is taking on new urgency as the United States inches closer to default. Treasury Secretary Janet L. Yellen warned on Monday that the government could run out of cash as soon as June 1 if the borrowing cap is not lifted.Mr. Biden is set to meet with Speaker Kevin McCarthy of California at the White House on May 9 to discuss fiscal policy, along with other top congressional leaders from both parties. The president’s invitation was spurred by the accelerated warning of the arrival of the X-date.But it remains unclear what type of compromise may be reached in time to avoid a default. House Republicans have refused to raise or suspend the debt ceiling unless Mr. Biden accepts spending cuts, fossil fuel supports and a repeal of Democratic climate policies, contained in a bill that narrowly cleared the chamber last week.Mr. Biden has said Congress must raise the limit without conditions, though he has also said he is open to separate discussions about the nation’s fiscal path.A White House spokesman declined to comment on Tuesday.A group of legal scholars and some liberal activists have pushed the constitutional challenge to the borrowing limit for more than a decade. No previous administration has taken it up. Lawyers at the White House and the Justice and Treasury Departments have never issued formal opinions on the question. And legal scholars disagree about the constitutionality of such a move.“The Constitution’s text bars the federal government from defaulting on the debt — even a little, even for a short while,” Garrett Epps, a constitutional scholar at the University of Oregon’s law school, wrote in November. “There’s a case to be made that if Congress decides to default on the debt, the president has the power and the obligation to pay it without congressional permission, even if that requires borrowing more money to do so.”Other legal scholars say the limit is constitutional. “The statute is a necessary component of Congress’s power to borrow and has proved capable of serving as a useful catalyst for budgetary reform aimed at debt reduction,” Anita S. Krishnakumar, a Georgetown University law professor, wrote in a 2005 law review article.The president has repeatedly said it is the job of Congress to raise the limit to avoid an economically catastrophic default.Top officials, including Ms. Yellen and the White House press secretary, Karine Jean-Pierre, have sidestepped questions about whether they believe the Constitution would compel the government to continue borrowing to pay its bills after the X-date.ABC News asked Ms. Yellen amid a debt-ceiling standoff in 2021 if she would invoke the 14th Amendment to resolve it.“It’s Congress’s responsibility to show that they have the determination to pay the bills that the government amasses,” she said. “We shouldn’t be in a position where we need to consider whether or not the 14th Amendment applies. That’s a disastrous situation that the country shouldn’t be in.”The government reached the borrowing limit on Jan. 19, but Treasury officials deployed what are known as extraordinary measures to continue paying bills on time. The measures, which are essentially accounting maneuvers, are set to run out sometime in the next few months, possibly as soon as June 1. The government would default on its debt if Treasury stopped paying all bills. Economists have warned that could lead to financial crisis and recession.Progressive groups have encouraged Mr. Biden to take actions meant to circumvent Congress on the debt limit and continue uninterrupted spending, like minting a $1 trillion coin to deposit with the Federal Reserve. Internally, administration officials have rejected most of them. Publicly, Biden aides have said the only way to avert a crisis is for Congress to act.“I know you probably get tired of me saying this from here over and over again, but it is true,” Ms. Jean-Pierre said on Thursday, after referring a question about the 14th Amendment to the Treasury Department. “It is their constitutional duty to get this done.”But inside the administration, it remains an open question what Treasury would do if Congress does not raise the limit in time — because, many officials say, the law is unclear and so is the Constitution, which gives Congress the power to tax and spend.Officials who support invoking the 14th Amendment and continuing to issue new debt contend the government would be exposed to lawsuits either way. If it fails to continue paying its bills after the X-date, it could be sued by anyone who is not paid on time in the event of a default.Other officials have argued that the statutory borrowing limit is binding, and that an attempt to ignore it would draw an immediate legal challenge that would most likely rise quickly to the Supreme Court.There is a broad consensus on both sides of the debate that the move risks roiling financial markets. It is likely to cause a surge in short-term borrowing costs because investors would demand a premium to buy debt that could be invalidated by a court.The Moody’s Analytics economist Mark Zandi modeled such a situation this year and found it would create short-term economic damage but long-term gains if courts upheld the constitutional interpretation — by removing the threat of future brinkmanship over the limit.“The extraordinary uncertainty created by the constitutional crisis leads to a sell-off in financial markets until the Supreme Court rules,” Mr. Zandi wrote in March. Economic growth and job creation would be dampened briefly, he added, “but the economy avoids a recession and quickly rebounds.”Obama administration officials considered — and quickly discarded — the constitutional theory when Republicans refused to raise the limit in 2011 unless the president agreed to spending cuts. Treasury lawyers never issued a formal opinion on the question, and they have not yet this year, department officials said this week.But in a letter to the editor of The New York Times in 2011, George W. Madison, who was Treasury’s general counsel at the time, suggested that department officials did not subscribe to the theory. He was directly challenging an assertion by the constitutional law professor Laurence H. Tribe, who wrote in an opinion essay in The Times that Treasury Secretary Timothy F. Geithner had pushed to embrace the 14th Amendment interpretation, which Mr. Tribe opposed.“Like every previous secretary of the Treasury who has confronted the question,” Mr. Madison wrote, “Secretary Geithner has always viewed the debt limit as a binding legal constraint that can only be raised by Congress.” More

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    Why the 14th Amendment Is Being Cited in the Debt Ceiling Debate

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    Some Biden administration officials believe a constitutional clause prevents the United States from failing to make payments even if it means breaching the debt limit.WASHINGTON — Faced with an impasse over raising or suspending the nation’s debt limit, some White House officials are looking to a clause in the 14th Amendment to ensure the United States does not default on its debt.The amendment, adopted after the Civil War, conferred citizenship to former slaves — and contains a more obscure section on public debt. Here is a brief history of the 14th Amendment and an explanation of its provisions, including why it’s now being talked about in the White House.What does the 14th Amendment say?Considered by historians to be a milestone for civil rights, the 14th Amendment to the Constitution extended citizenship to former slaves. It also guaranteed that the right to due process and equal protection under the law applied to both federal and state governments.The expansive amendment is the most cited amendment in lawsuits, according to the Library of Congress.Section 1 of the amendment established that “all persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the state wherein they reside” and that “no state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States.”Another provision, known as the Disqualification Clause, was more obscure until the events of Jan. 6, 2021. Some have argued that the clause, outlined in Section 3 of the 14th Amendment, bars anyone who has “engaged in insurrection or rebellion” from holding public office.Now, the standoff over the national debt has renewed debate over Section 4 of the amendment, known as the public debt clause.What spurred its adoption?After the Civil War and the assassination of President Abraham Lincoln, lawmakers sought to set out the terms of the Confederacy’s surrender and the rebellious states’ re-entry into the Union.The 13th Amendment’s formal abolition of slavery also meant that the size of delegations from former Confederate states would increase, even as the states passed discriminatory “Black codes” and prevented former slaves from voting. Reconstructionist Republicans in Congress sought to address these issues by passing the Civil Rights Act of 1866, which guaranteed citizenship and equal protection for former slaves.Although Republicans had enough votes to override a veto by President Andrew Johnson, some remained concerned that the protections in the law were not strong or permanent enough, and began seeking a constitutional amendment.A joint committee on Reconstruction then drafted what would become the 14th Amendment, which was passed by Congress in 1866 and ratified two years later.Why does it contain a public debt clause?The 14th Amendment includes a provision that protected public debt held by the federal government, and prohibited payment of debt held by the Confederate states.“The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned,” the clause reads.That section, historians say, was added because of fears that if former Confederate states were to regain political power in Congress, lawmakers might repudiate federal debts and guarantee Confederate debt. Reconstructionist Republicans also thought that the clause would discourage loans to future insurrectionists.“Southerners were used to having their way in Congress — they had dominated the institution from 1787 until secession in 1861 — and many believed that when their representatives arrived in House and Senate, they would be able to tear up the nation’s i.o.u.s. Section 4 was the response,” Garrett Epps, a legal scholar, has previously written.Why is it being discussed today?Some legal scholars contend that the public debt clause overrides the statutory borrowing limit, which is set by Congress and can be lifted or suspended only with lawmaker approval.The United States hit that cap on Jan. 19 and on Monday, Treasury Secretary Janet L. Yellen warned that the federal government could run out of cash to pay its bills by June 1 unless it was able to borrow more money.The Biden administration is discussing whether the 14th Amendment compels the government to continue issuing new debt to pay bondholders, along with Social Security recipients, military personnel and others, even if Congress fails to lift the limit before the so-called X-date. More