A grinding political battle in Congress over America’s national debt led the U.S. Treasury on Thursday to postpone a regular auction of government debt, a reminder that the country once again is just weeks away from a potential default.
The Obama administration warned last week the federal government would have to stop borrowing money no later than Nov. 3 if the country’s politicians do not raise the legal limit on federal debt. Many conservative Republicans balk at raising the debt limit without a plan for long-term deficit reduction.
On Thursday, the Treasury Department said in a statement it would not hold an auction for 2-year notes originally scheduled for Oct. 27 because it might not be legally able to borrow money when the auction settles on Nov. 2.
It also called on lawmakers to stop treating the debt ceiling as a political issue.
“The creditworthiness of the United States is not a bargaining chip, and Congress should address this matter without controversy,” the department said.
Battles over the debt ceiling have become a regular facet of Washington’s political calendar even though missing payments could lead to economic calamity.
America came dangerously close to falling behind on its bills in 2011 and 2013, but Thursday was the first time since 2004 that it called off an auction due to the debt ceiling.
Currently Congress is in disarray over a leadership vacuum in the Republican party. House Speaker John Boehner wants to step down but his fellow Republicans have been unable to agree on a successor. This is complicating efforts to negotiate on the debt ceiling.
The federal debt started scraping up against the $18 trillion legal limit in March. Since then, the Treasury has employed emergency accounting measures like suspending investments in some federal pension funds to keep outstanding debt just under the limit while allowing debt auctions to continue.
Thursday’s announcement stoked demand for 2-year notes on Wall Street, pushing their yield down to 0.6006 percent. But the Treasury said uncertainties over America’s willingness to pay its debts were already pushing up yields for Treasury bills maturing in November compared to those that come due in October and December.
The Treasury said it will still hold auctions for 5-year and 7-year notes next week even though they are also scheduled to settle on Nov. 2.
“Treasury believes that postponing the auction for the 2-year note poses less risk for market functioning than postponing the 5-year or 7-year note offering,” the department said.
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