Default may occur by June in the U. S.
2023.01.13 14:56
Default may occur by June in the U. S.
By Kristina Sobol
Budrigannews.com – On Friday, U.S. Treasury Secretary Janet Yellen stated that the nation’s statutory debt limit of $31.4 trillion will likely be reached on January 19, necessitating the Treasury’s implementation of extraordinary cash management measures that may be able to avert default until early June.
In a letter to the new Republican House of Representatives speaker Kevin McCarthy and other congressional leaders, Yellen stated, “Once the limit is reached, Treasury will need to start taking certain extraordinary measures to prevent the United States from defaulting on its obligations.”
In order to “protect the full faith and credit of the United States,” she urged legislators to act quickly to raise the debt ceiling.
“It is unlikely that cash and extraordinary measures will be exhausted before early June,” the letter continued. “While Treasury is not currently able to provide an estimate of how long extraordinary measures will enable us to continue to pay the government’s obligations,” the letter continued.
Republicans have threatened to use the debt ceiling as leverage to demand spending cuts from Democrats and the Biden administration now that they control the House. This has raised concerns in Washington and on Wall Street regarding a bruising dispute over the debt ceiling this year that may be at least as disruptive as the prolonged dispute in 2011, which resulted in a brief downgrade of the United States’ credit rating and years of compelled spending cuts on domestic and military programs.
Friday, following Yellen’s letter, the White House stated that it would not negotiate a debt ceiling increase.
Karine Jean-Pierre, a spokesperson for the White House, stated to reporters, “This should be done without conditions.” There will be no discussion about it. It is imperative that this be completed.
The estimate by Yellen, in which she expressed confidence that the government could pay its bills until early June without raising the limit, marks a deadline that is significantly earlier than forecasts made by some outside budget analysts that the government would run out of cash and borrowing capacity sometime in the third quarter of the calendar year 2023. This date is known as the “X Date.”
Analysts have noticed that some Treasury bills with maturities in the second half of the year have yields that are higher, which may be related to the increased risk of defaulting during that time period.
Shai Akabas, director of economics at the Bipartisan Policy Center, said, “You could read this partly as trying to get Congress to act sooner rather than later.” He also said that Treasury was being conservative in its approach.
Due to a variety of factors, including the difficulties of forecasting the government’s payments and revenues months in advance, Yellen stated that there was “considerable uncertainty” regarding the amount of time that extraordinary measures could prevent default.
U.S. federal debt was $78 billion below the limit as of Wednesday, according to Treasury data, and the Treasury’s operating cash balance was $346.4 billion. On Thursday, the department revealed a deficit of $85 billion for the month of December as spending increased, particularly for debt interest costs.
In her letter, Yellen stated that the Treasury anticipates suspending new investments in two government retiree funds for healthcare and pensions this month as well as reinvestments in the Government Securities Investment Fund, or G Fund, which is part of a savings plan for federal employees. When the debt ceiling is raised, the investments in retirement are restored.
In a letter to McCarthy and other congressional leaders, Yellen wrote, “The use of extraordinary measures enables the government to meet its obligations for only a limited amount of time.”
“Consequently, Congress must act promptly to either raise or lower the debt limit. “The U.S. economy, the livelihoods of all Americans, and global financial stability would suffer irreparably if the government failed to meet its obligations,” Yellen wrote.
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