Secretary of the Treasury Janet Yellen Friday urged Congress to raise or suspend the debt ceiling by the end of the month, warning that his department will have to deploy “extraordinary measures” from August 2 to prevent the US government from defaulting.
“If Congress has not acted to suspend or increase the debt limit by Monday, August 2, 2021, the Treasury will need to start taking some additional extraordinary measures to prevent the United States from defaulting on its obligations “Yellen wrote in a letter. to the four main leaders of Congress.
WHAT IS THE DEBT CEILING?
The debt ceiling, which is currently around $ 22 trillion, is the legal limit on the total amount of debt the federal government can accumulate; according to Committee for a Responsible Federal Budget. It applies to both the $ 16.2 trillion held by the public and the $ 5.9 trillion owed by the government.
In 2019, former President Donald Trump suspended the country’s borrowing limit for two years, but that suspension is set to expire on July 31, and Democrats apparently do not yet have a plan to increase the limit or suspend it again.
“We are looking at all options,” House Speaker Nancy Pelosi recently told Bloomberg News.
If Congress is unable to raise the debt ceiling, the Treasury would enter uncharted territory, unable to pay the bills – including payments to Social Security recipients, government employees, or the military – because he would not have money in hand. The Treasury Department would no longer be able to issue any more bills or bonds and would instead have to rely on tax revenue and emergency accounts to foot the bill.
Other “extraordinary measures” the Treasury would take range from stopping the issuance of special securities to state and local governments to suspending the daily reinvestment of Treasury securities held by a government employee pension fund and the government. Treasury’s currency stabilization fund, Reuters reported.
“The period of time during which extraordinary measures may last is subject to considerable uncertainty due to a variety of factors, including the challenges of forecasting U.S. government payments and revenues in the coming months, exacerbated by the increased uncertainty. in payments and revenues related to the economic impact of the pandemic, ”Yellen wrote in a letter to Speaker of the House Nancy Pelosi, Senate Majority Leader Chuck Schumer, House Minority Leader Kevin McCarthy and Senate Minority Leader Mitch McConnell.
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Eventually, the federal government would have to temporarily default on some of its obligations, which could have serious and negative economic consequences. Interest rates would likely rise and the demand for treasury bills would fall; even the threat of default can increase borrowing costs.
The United States has never defaulted on its debt before, but came close in 2011, when House Republicans refused to raise the debt ceiling, prompting the rating agency Standard and Poor’s to downgrade the US debt rating by a notch.