October 1, 2014

Time Running Short for Action on Debt Limit

  • The national debt has grown significantly in recent years due to rising annual deficits. A deficit occurs in any year the government spends more...

Treasury Secretary Jack Lew has warned lawmakers that the government could hit its debt ceiling in mid-October, earlier than many analysts had predicted.

Congress has no choice but to eventually raise the debt limit so the government can pay its bills and avoid default. Pending congressional action, the Treasury has relied on “extraordinary measures” to avoid default since May 19.

One factor that has helped delay a crisis: Fannie Mae and Freddie Mac are paying higher dividends to the government than many had expected. The government-controlled mortgage giants have been buoyed by Federal Reserve purchases of mortgage-backed securities.

In addition, changes last year to an agreement between the government and the two companies has boosted their payments to the Treasury Department.

The Treasury has so far received $146 billion in dividend payments from Fannie and Freddie, which received $188 billion in bailout funds during the financial crisis. Last month, however, President Obama declared support for phasing out Fannie and Freddie to avoid future government bailouts.