US Treasury Secretary Janet Yellen has said the government will run out of funds to cover its financial obligations on June 5 if the current spending limit of $31.4 trillion is not collected before that date.
Yellen’s announcement, which came in the form of a letter to the US Congress on Friday, pushes back the deadline for a potential breach of an earlier estimate that the Treasury could run out of cash as early as June 1.
“During the week of June 5, the Treasury Department is scheduled to make payments and transfers estimated at $92 billion,” including a quarterly adjustment of nearly $36 billion to the Social Security and Medicare trust funds, Yellen wrote. in the letter.
“Therefore, our projected resources would be inadequate to meet all of these obligations,” he said.
The extended deadline gives lawmakers more breathing room as they try to reach a deal to increase the US spending limit
Congress is tasked with increasing the nation’s debt ceilingand Republican lawmakers have used their majority in the US House of Representatives as leverage to demand cuts in entitlement programs in exchange for a ceiling increase when a moratorium looms on the horizon.
Where are the things?
In recent weeks, the Republican majority in the House Lead Kevin McCarthy has been in talks with of President Joe Biden administration as they try to reach a deal and avoid default, which experts say could have devastating effects on the US and global economy.
Speaking earlier on Friday, McCarthy said negotiators were working to “finish the job” but did not know if a deal would be reached within 24 hours.
The two sides are seeking a deal that would raise the debt ceiling for two years, until after the next presidential election, cut spending by 2024 and place a 1 percent cap on spending growth by 2025.
It is unclear whether the relaxed deadline will give lawmakers room to iron out the final details or whether the Conservatives will stand their ground and use the extra time to push for further concessions and spending cuts. Most of the legislators left for Memorial Day weekend, but have been warned that they will need to report back to Washington, DC to vote on a deal if there is one.
According to the Treasury Department, the debt ceiling has been raised 78 times since 1960, 49 times under Republican presidents and 29 times under Democratic presidents.
What does each party want?
Republicans have pushed for more restrictive requirements on benefits such as food assistance and health care for low-income recipients whom the party wants to have jobs, saying the country must reduce its spending levels.
Democrats are resisting the new work requirements for benefit programs and were quick to point out that, during the administration of former President Donald Trump, Republicans seemed to show little concern about raising spending limits.
On Thursday, news outlets reported that McCarthy and Biden were close to a deal that would reportedly include increased military spending, reclaiming unused COVID-19 relief funds currently set aside for things like disaster relief. and vaccine research, and cut funding for the Internal Revenue Service. (IRS).
Most importantly, the deal would reportedly include a cap on non-military discretionary spending on things like housing, education, highway safety, and other federal programs.
While a spending cap would likely serve as a de facto cut to social safety net programs, given rising inflation, such a deal would likely be more palatable to Democrats than the sharp cuts Republicans had previously proposed.
What happens if the US misses the deadline?
Default risks are also considerable, with Yellen notifying previously such a default would be an “economic and financial catastrophe” that would “raise the cost of borrowing in perpetuity.”
Some rating agencies have warned that they could downgrade the US’s credit rating, raising borrowing costs and undermining the country’s global standing.
When Republicans in 2011 also pushed for spending cuts in exchange for an increase in the debt ceiling, and caused a temporary suspension of many government services, the Government Accountability Office found that the delay in raising the ceiling cost the I know. .
A recent analysis by Brookings, a US think tank, found that the lower interest rates currently enjoyed by the government will save it about $50 billion next year and more than $750 billion over the next 10 years. The analysis states that if “a portion of this advantage were lost by allowing the debt limit to be binding, the cost to the taxpayer could be significant.”
Another report by Moody’s, an economic research group, also found that if a deal is not reached by the deadline, unemployment could rise by 1.6 percent, even if the ceiling is raised shortly thereafter.
The question of what effect a by default it would have about government services, and what payments the Treasury would prioritize, also remains an open question.
In 2011, the deal was struck just two days before the Treasury estimated it would run out of money to meet its financial obligations.
The United States has kept its financial commitments since 1789 by paying its bills on time. Congress has prevented default 78 times. It is essential that they do it again. pic.twitter.com/azPjhFdUry
— Secretary Janet Yellen (@SecYellen) May 22, 2023
At the time, the Treasury planned to prioritize interest and principal payments, with possible delays on other obligations such as retirement benefits, health care and military pay.
He biden administration it has not made clear which payments it would prioritize in case of default.
However, a recent report from National Public Radio in the US found that $12 billion in benefits for veterans and $47 billion for Medicare providers are due June 1, $25 billion in social security benefits due June 2 and $4 billion in federal wages. on June 9.
If a default were to occur, those payments could be missed.
“If Congress does not increase the debt limit, it would cause serious hardship for American families, damage our global leadership position, and cast doubt on our ability to defend our national security interests,” Yellen’s letter reads. “I continue to urge Congress to protect the full faith and credit of the United States by acting as soon as possible.”
Discover more from PressNewsAgency
Subscribe to get the latest posts sent to your email.