US Treasury Secretary Janet Yellen warned the US Congress that the country is projected to reach its debt limit on January 19. She said once it reaches that limit, the US will have to resort to “extraordinary measures” to avoid default, the Guardian said in a report.
She informed House and Senate members on Friday that her actions will buy some time for the US Congress. Using that time they can pass legislation which can raise US’ $31.4 trillion borrowing authority or suspend it for a certain period.
Lawmakers were urged to act quickly to raise the US’ debt ceiling. She said it should be done to protect “full faith and credit of the United States.”
Yellen said failing to do so will ‘irreparably’ harm the American economy and hurt the livelihoods of all Americans and affect global financial stability.
The Biden administration and Wall Street are anticipating a fight over the debt ceiling in 2003. They pointed to the year 2011 where a similar situation arose and led to brief downgrading of the US credit rating and also led to years of forced domestic and military spending cuts, the Guardian said.
Republicans are threatening to use the debt ceiling as a leverage to demand spending cuts from Democrats and the White House. The Washington Post in a report said that House Republicans have an emergency plan to breach the debt limit.
The proposal will direct the Treasury Department to prioritise certain payments if the US hits the debt ceiling, the Washington Post said.
House Speaker Kevin McCarthy said that he had a very good conversation with US President Joe Biden regarding the debt ceiling. “We don’t want to put any fiscal problems on our economy and we won’t, but fiscal problems would be continuing to do business as usual. We’ve got to change the way we are spending money,” McCarthy said, according to the Washington
Post.
The proposal will direct the Treasury Department to keep making interest payments on the debt, the Washington Post said in its report. The payments to social security, Medicare and veterans benefits, as well as funding the military will continue under the proposed plan.
A default could bury the country into deep recession and could happen at a time when global growth is slowing and the economies across the globe face high inflation due to Covid and war in Ukraine. It could lead to a market crash and millions of workers could be laid off.
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