Yellen Says the US Will Reach Its Debt Ceiling on Thursday and Warns of “Irreparable Harm”
The United States is likely to reach its borrowing limit next Thursday. To avoid a debt default, Treasury Secretary Janet Yellen told congressional leaders on Friday that the government would have to take “extraordinary measures.”
This will speed up the discussion in Congress about how to raise the debt limit. The stakes are high because conservative House Republicans have made it clear that, now that they have a majority and against the wishes of the Biden administration, they want to attach spending cuts to any bill like this.
The Biden administration doesn’t agree with any of these conditions. Karine Jean-Pierre, a spokesperson for the White House, told reporters on Friday, “There will be no wiggle room.” “This is something that must be done.”
The Treasury has a short amount of time to take extraordinary steps, like stopping investments in some government retirement funds, to avoid a default. Most people think that the “X date” will happen around the middle of this year. Yellen said that cash and other special measures are not likely to run out before the beginning of June.
She said that if the government didn’t meet its obligations, it would hurt the US economy, all Americans’ jobs, and the world’s financial stability in a way that couldn’t be fixed.
With her letter, Yellen officially started what is expected to be the most contentious fight over the debt ceiling in U.S. history. This is despite the fact that Republican opposition has brought the country close to bankruptcy in the past.
After the House GOP’s long fight over whether or not to make Kevin McCarthy speaker, the stakes are higher than ever. The Republican from California’s narrow path to the speakership gave hard-line conservatives more confidence in their plan to use the debt limit to force spending cuts, which McCarthy supports.
The conflict is a threat to the economy because the market for US Treasury securities is a key part of the global financial system. If the market for US Treasury securities is unstable, it could affect lending products like mortgages. Officials at the White House have started looking for moderate Republicans who could help them reach a deal to raise the debt ceiling.
The debt ceiling is the legal limit on how much the US can borrow to pay for things like Social Security, Medicare, and pay for the military. The limit is almost $31.4 trillion right now.
When the government doesn’t make a debt payment, there is a big risk, but Wall Street analysts aren’t sure if the current situation will lead to an economic disaster.
Some analysts say that market chaos could happen even if the U.S. doesn’t technically default but is forced to do things it has never done before to keep from missing payments.
Elliot Hentov, head of policy research at State Street Global Advisors, said, “At the end of the day, I always felt like I understood the need for drama, but I could see a landing zone for how it gets solved.” “I haven’t seen that yet here, and it makes me feel very uneasy.”
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