The US hits the debt ceiling: what’s next?     5th September

The US hits the debt ceiling: what’s next? 5th September

Lawmakers must bridge deep political divisions in Congress to negotiate a solution and avoid potentially disastrous consequences for the economy.

The United States hit its $31.4 trillion debt ceiling on Thursday, prompting the Treasury Department to take “extraordinary measures” to keep paying the federal government’s bills.

In a letter to House Speaker Kevin McCarthy, Treasury Secretary Janet Yellen announced the decision had been made Suspend contributions and investment redemptions for retirement and disability funds and health care for American workers.

These measures came into force today and will apply until June 5 this year, giving the government ample financial flexibility cover your daily expenses until early summer.

Lawmakers must now bridge deep political divisions in Congress to negotiate a solution to avoid potentially disastrous consequences for the national economy. many fear a stock market crash higher interest rates, the weakening of the dollar and a US credit rating downgrade.

In her letter, Yellen also warned that the measures “are subject to significant uncertainties” should Congress fail to reach agreement on the debt ceiling.

Disagreements between Democrats and Republicans

Last Friday, the senior official urged Congress to “act in a timely manner to raise or suspend the debt ceiling,” as failure to do so could lead to and cause the first default in U.S. history economic damage worldwide, reports the media. That day, the White House also asked lawmakers to raise the debt ceiling “with no strings attached.”

But with US President Joe Biden refusing to start talks with Republicans and insisting on a “clean” increase in that limit, McCarthy is calling for negotiations that he believes will lead to spending cuts, CBS News reports.

For her part, Yellen has dismissed the ideas of unilaterally raising the debt ceiling as “imaginative” like minting a trillion-dollar coin, the New York Times reports.

position in the White House

White House Press Secretary Karine Jean-Pierre asked Wednesday if there was evidence House Republicans could ensure the government avoids a default, responding that it was their “constitutional responsibility.”

“We’re just not going to negotiate”said the spokeswoman. “There is no alternative here to the responsibility of Congress to address the debt ceiling. […] she [los republicanos] They should feel the responsibility,” he said.

What happens if Congress doesn’t reach an agreement?

It is not yet known what will happen if an agreement to raise the debt limit is not reached until the measures taken are exhausted. As the Treasury has warned, a prolonged default could have devastating consequences falling markets and layoffs caused by panic.

“A deal is likely to be reached at the last minute, increasing the risk of inadvertently missing the deadline to raise the cap,” Andrew Hunter, chief economist at Capital Economics, was quoted as saying by CBS News.

Gregory Daco, chief economist at EY-Parthenon, in turn, estimated that without raising or suspending the debt ceiling until the extraordinary measures are exhausted US economic output could be reduced by 5%. Such a contraction would deal a severe blow to an economy that is expected to grow slightly this year.

“The Treasury Department would need to balance the federal budget by making sure government spending has equal revenue,” Daco said. Moreover, he predicted that such a situation would lead to “a self-inflicted recession” and would risk “serious financial market disruptions”.

Taken from Russia today