Treasury Secretary Janet Yellen informed Congress on Friday that the United States would reach its statutory debt limit next Thursday.
After that, the Treasury Department will begin this month to “take certain extraordinary measures to prevent the United States from defaulting on its obligations,” Yellen wrote in a letter to incoming House Speaker Kevin McCarthy, R-Calif. .
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The Treasury “is not currently in a position” to estimate how long these emergency actions will allow the United States to pay government obligations, she wrote. On the same subject : Jones Garden brings fresh food, people along to Staunton.
But “cash and extraordinary measures are unlikely to run out before early June,” Yellen added.
She warned McCarthy that it is “critical that Congress act in a timely manner to raise or suspend the debt ceiling.”
“Failure to meet government obligations would cause irreparable harm to the American economy, the livelihoods of all Americans, and global financial stability,” Yellen wrote.
“I respectfully urge Congress to act quickly to protect the faith and credit of the United States.”
Janet Yellen, U.S. Treasury Secretary, speaks during a meeting of the Financial Stability Oversight Board (FSOC) at the Treasury Department in Washington, DC, U.S., Friday, Dec. 16, 2022.
ting shen | Bloomberg | Getty Images
A spokeswoman for McCarthy had no immediate comment on Yellen’s letter.
White House press secretary Karine Jean-Pierre told reporters later Friday, “Congress is going to have to raise the debt ceiling unconditionally.”
“It’s one of the basic things that Congress has to deal with and it should be done without conditions. So there will be no negotiation about it,” Jean-Pierre said. “It’s something that needs to be done.”
Yellen’s letter effectively kicks off a countdown to how long the federal government can continue to pay interest on its debt.
Congress in December 2021 increased the federal debt limit to approximately $31.4 trillion.
The limit is the total amount of money the US government is legally allowed to borrow to pay its existing obligations. These obligations include “Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds and other payments,” Yellen noted.
The so-called extraordinary measures available to the Secretary of the Treasury free up the borrowing capacity of the government.
This can extend the clock for weeks or months while Congress prepares a bill to increase the borrowing limit.
Senate Majority Leader Chuck Schumer, D-N.Y., and House Democratic Leader, Rep. Hakeem Jeffries of New York, said in a joint statement, “Congress must act on legislation to prevent a disastrous default, honor our obligations, and protect the full faith and credit of the United States.”
“A forced default by extreme MAGA Republicans could plunge the country into a deep recession and result in even higher costs for American working families on everything from mortgages and auto loans to credit card interest rates.” , the leaders said in their statement.
Yellen wrote that the two extraordinary measures the Treasury plans to implement are the buyout of existing investments and the suspension of new investments from the Civil Service Retirement and Disability Fund and the Pensioners’ Health Benefits Fund. postal service; and the suspension of the reinvestment of the Government Securities Investment Fund of the Federal Employees Retirement System Savings Plan.
She noted that Congress previously authorized the Treasury to use such measures, which the department has used in the past.
“After the impasse over the debt limit ends,” these funds “will be replenished,” Yellen wrote.
A senior White House official told CNBC that the Biden administration plans to pursue negotiations with Congress in earnest after the mid-April fiscal deadline.
At this point, the official said, the federal government will have a better idea of how much revenue it will go to, how far it will go to pay the country’s bills and how urgently it needs to reach a deal.
The trajectory of the US economy between now and then will also determine how brazen Republicans become in their demands for spending cuts in response.
Sen. Mitch McConnell of Kentucky, the top Republican in the Senate, has long rejected raising the debt ceiling unless conservative fiscal policies are included.
It remains unclear whether the new GOP majority in the House under McCarthy will unite on its own set of demands.
McCarthy has made no secret of the fact that Republicans intend to demand massive spending cuts from the federal budget in exchange for approving a debt ceiling increase.
But he told reporters Thursday that GOP lawmakers “don’t want to impose fiscal problems on our economy, and we won’t.”
Earlier this week, the new House Majority Leader, Rep. Steve Scalise, R-La., compared the U.S. borrowing limit to a domestic credit card, saying the country needed to reduce its spending in the same way as someone with maxed out credit cards.
“As you manage the debt limit, you also put mechanisms in place so that you don’t continue to exceed it,” Scalise told reporters on Capitol Hill, “because if the limit is raised, you don’t don’t go to the store the next day and you max out again.”
“You’re starting to understand how to control the spending problem. And it’s been going on for too long. And we’re going to deal with it,” he said.
What the Republicans failed to say, however, is that unlike a household defaulting on its debt, a US government default would have massive repercussions around the world.
A default on Treasuries could send the US economy into a fall as bad as the Great Recession, research firm Moody’s Analytics warned in a September 2021 report.
At the time, Moody’s also predicted a 4% decline in gross domestic product and the loss of nearly 6 million jobs if the United States defaulted.
In her letter to McCarthy on Friday, Yellen wrote: “Indeed, in the past, even threats that the US government might not meet its obligations have caused real harm, including the single downgrade in the credit rating of the history of our nation in 2011.”
Yellen added, “Raising or suspending the debt ceiling does not authorize new spending commitments or cost taxpayers money. It simply allows the government to fund existing legal obligations that Congress and the presidents of both parties have contracted in the past.”
CNBC’s Emma Kinery contributed to this article.
Correction: An earlier version of this article incorrectly listed the month in which Congress increased the statutory debt ceiling.
Are Americans in too much debt?
Why are Americans so indebted? From fiscal year 2019 to fiscal year 2021, expenses increased by approximately 50%, mainly due to the COVID-19 pandemic. Tax cuts, stimulus programs, increased government spending and lower tax revenues caused by widespread unemployment usually explain large increases in national debt.
How much debt is the average American in?
Average U.S. Household Debt Statistics The average American holds a debt balance of $96,371, according to data from Experian 2021, the latest available data. This represents an increase of 3. Read also : The United States transfers five UH-1H helicopters to Guatemala.9% from the average balance of $92,727 in 2020, largely due to the increase in the balance of mortgages and auto loans.
Are Americans struggling financially?
Overall, American workers are struggling financially. Even high earners are struggling more than last year, Salary Finance said. On the same subject : Pegasus strikes again: Thai activists fall victim to technological hack. Of those earning over six figures, around half are finding it harder to stay afloat and have less savings than in 2021.
Is there any point paying a default?
Your credit score will gradually improve as your defaults age. It doesn’t accelerate when you pay off defaulted debt, but some lenders are only likely to lend you after the defaults are paid. And starting to pay off debt makes a CCJ much less likely, which would worsen your credit report.
Will my credit score go up with a default? Yes, a default generally has a negative impact on your credit report and will lower the rating. This can make it harder to get credit in the future.
How many points will my credit score go up when a default is removed?
As soon as a default is more than two years old, the negative effect drops to 250 points, then when it is more than 4 years old it drops a little more to 200 points. These blows to your credit rating aren’t reduced when you start paying off the debt, or even when it’s been paid off in full.
Does paying off defaulted loans help credit score?
Recovering from default This can lower your overall interest rate and make it easier to pay off your debt. Once you start paying off your balances, your debt-to-equity ratio will improve, which can improve your credit scores.
Is it a risk for America that China holds over $1 trillion in U.S. debt?
It’s safe and convenient. As the world’s reserve currency, the US dollar is widely used in international transactions. Commercial goods are valued in dollars and due to its high demand, the dollar can easily be cashed. Moreover, the US government has never defaulted on its debt.
What would happen if China recalled US debt? If China ever recalled its debt, it would slowly start selling off its Treasury holdings. Even at a slow pace, demand for dollars would fall. This would hurt China’s competitiveness by increasing the value of the yuan against the dollar. At a certain price level, American consumers would rather buy American products.
What happens if China stops buying U.S. debt?
If China (or any other country with a trade surplus with the United States) stops buying US Treasuries or even begins to shed its US foreign exchange reserves, its trade surplus would become a trade deficit – something that no export-oriented economy would want, because they would be worse off as a result.
How Much of U.S. debt owned by China?
Get ready for this stat – China has $981 billion in US debt. That means we owe China almost a trillion dollars!
