The repeated appeals from the Treasury Department and the White House to resolve a political deadlock with unpredictable consequences have been futile. The US government hit its $31.4 trillion debt ceiling this Thursday, which could result in a short-term financial crisis as the House of Representatives is controlled by Republicans and they will use their parliamentary majority to demand fresh spending cuts from Biden and the Senate, in democratic hands. Congress is thus becoming true to a yardstick that could unbalance the remainder of the Democratic president’s term. The prospect of an unprecedented default, the first, will loom over the political scene in the coming months at a time of uncertainty amid fears of a 2023 recession.
The deadline reached today will not have immediate effect as the Treasury Department has taken emergency measures to avoid breaching its commitments. The most pressing risk will be seen in June, as the government approaches the so-called X-date, after which the Treasury would be left without emergency liquidity or room to make unavoidable payments. Washington’s hands are tied when it comes to issuing debt before Congress, the only one capable of raising that ceiling at its discretion, a limit often used as a political bargaining chip.
The debt limit is the total amount that the US government is allowed to borrow to meet its legal obligations to pay Social Security and Medicare benefits, military salaries, interest on federal debt, tax returns, and other expenses. The debt ceiling is a political thriller that repeats itself periodically: The United States avoided the first national bankruptcy in October 2021 with a political agreement in extremis.
Despite the time pressure, neither party has shown any signs of rapprochement in this respect; on the contrary, many Republicans have in recent days persisted in their call for federal spending cuts over the next decade. In a letter dated the 13th, Treasury Secretary Janet Yellen urged Republicans to reconsider their opposition to raising the debt ceiling. In a statement this Thursday, he detailed the “extraordinary measures” the department he heads has taken to address the impasse and urged congressional leaders to raise the debt ceiling as soon as possible to avoid an unprecedented default to avoid. The news was sent as an official notice to Republican Speaker of the House Kevin McCarthy and Democratic Minority Leader Hakeem Jeffries.
The Treasury Department has approved a “mortgage period for debt issuance” from this Thursday until June 5. “My predecessors [al frente del Tesoro] they have declared debt issuance suspension periods in similar circumstances,” recalled Yellen. The exceptional measures imply suspending the reinvestment of the special fund in federal securities for savings and pensions for federal employees until then.
Republicans oppose public spending
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Yellen reminds that Post employees will be particularly affected in terms of their retirement and disability pensions. The Postal Service has been criticized by Republicans since the days of the Donald Trump administration as the epitome of unnecessary public spending. During the campaign that led him to the presidency in 2016 and re-election in 2020, the Republican attacked the postal service as the embodiment of all the ills of the public, in open opposition to his private management model. of the prison system. Post offices and prisons then became formative emblems of both sides.
“As I noted in my January 13 letter, the potential duration of extraordinary measures faces significant uncertainties, including the challenges posed by forecasting US government payments and revenues months in advance. I urge Congress to act quickly to protect the full confidence and credit of the United States,” concluded Yellen’s message.
The finance minister has already said it is “unlikely” that the government will run out of liquidity before “early June”. The date of the abyss depends on a number of factors, including tax revenue. His letter kickstarts a legislative battle that is expected to last for months as Congress is split over last November’s midterm elections, with Republicans controlling the House and lower house and Democrats sticking to the Senate, the upper house. Republicans control the bottom line by a narrow seven-seat margin, meaning a large minority of Conservatives can block legislation.
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