US hits debt ceiling, prompting Treasury to take extraordinary measures
The drama about the debt ceiling, explained in 2 minutes
The US hit the debt ceiling set by Congress on Thursday, forcing the Treasury Department to take extraordinary measures to ensure the government continues to pay its bills and increasing pressure on Capitol Hill to avoid catastrophic bankruptcy.
The battle lines for the high-stakes fight have already been determined. Hardline Republicans, who have enormous clout in the House because of the party's narrow majority, have demanded that lifting the borrowing cap be tied to spending cuts. The White House countered that it will not make concessions or negotiate raising the debt ceiling. And with the solution to the debt-ceiling drama in the hands of lawmakers, fears are growing that the partisan blunders could lead the nation to default — or come dangerously close — on its debt for the first time ever.
Treasury Secretary Janet Yellen wrote a letter to Speaker of the House of Representatives Kevin McCarthy on Thursday informing him that the country's outstanding debt has reached the legal limit of $31.4 trillion and that the agency will take extraordinary measures. to prevent it from paying off its debts. huge implications for the US economy, global financial stability and many Americans. She said the measures would last until June 5.
This gives Congress some time — but how long the extraordinary measures may last is subject to "considerable uncertainty," she wrote, emphasizing that it is challenging to predict how much financial obligations the federal government will have to pay and how much revenue it will receive. will cost in months. in the future.
"I respectfully urge Congress to act quickly to protect the full faith and honor of the United States," she wrote.
The announcement follows Yellen's warning last week about the impending debt limit and the temporary band-aid of the extraordinary measures.
But her post hasn't sparked a bipartisan discussion so far. Instead, both Republicans and Democrats have reaffirmed their rigid positions over the past week.
National Economic Council director Brian Deese on Thursday repeatedly called on Congress to honor the United States' obligations by raising the debt limit, warning of "economic chaos" that could ensue if Congress doesn't do this.
"This is about economic stability versus economic chaos," Deese told Kaitlan Collins on "CNN This Morning," calling it Congress's "fundamental, fundamental obligation."
He added, "Even the mere specter of the United States defaulting on its commitments hurts the economy."
McCarthy must walk a fine line as any member can file a motion to vacate the speaker's seat, one of several concessions he made to get the top post after 15 rounds of voting earlier this month.
For now, he's leaning on using the debt ceiling crisis to cut spending and balance the US budget. On Tuesday, McCarthy rejected Democratic calls for a clean debt ceiling raise without any preconditions — something Congress has done time and time again, including under then-President Donald Trump. The speaker told reporters on Capitol Hill that the Biden administration should begin negotiations before this summer, when the US could default.
"Why not sit down and change this behavior so that we put ourselves in a fiscally stronger position?" said McCarthy.
President Joe Biden and McCarthy have yet to discuss the debt limit on Thursday, an official familiar with the dynamics said.
Far-right GOP Representative Andy Biggs went even further in a tweet on Tuesday, writing, "We can't raise the debt ceiling. Democrats have carelessly spent our tax dollars and devalued our currency. They made their bed, so they must be in it.
The White House on Wednesday denounced the Arizona Republican's "stunning and unacceptable position" and again rejected calls to cut spending as part of a debt ceiling deal.
While there were no meetings with congressional leaders to announce at this time, White House press secretary Karine Jean-Pierre told reporters that the administration has reached out to "all members, from both sides of the aisle," but "there will be no debt ceiling negotiations – we will not, it is their constitutional duty.
GOP Senate Majority Leader Mitch McConnell, meanwhile, tried to reassure Americans that a deal will eventually be reached with the Biden administration. He stressed that the US should never, and never will, default.
"No, I wouldn't worry about a financial crisis," he said Thursday at an event in Louisville, Kentucky, noting that dealing with the loan cap is "always a pretty contentious effort."
The debt ceiling, the maximum amount the federal government can borrow to fund obligations that legislators and presidents have already approved, was last raised in December 2021. Created more than a century ago, Congress has way to control the growth of lending – making it a political football in recent decades.
An increase in the ceiling does not allow new expenditure commitments.
The Treasury will begin using two extraordinary measures to temporarily continue funding the federal government's operations, Yellen wrote Thursday. It's mostly behind-the-scenes accounting maneuvers.
As part of the debt issuance suspension period, the agency will begin selling existing investments and suspending reinvestments from the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund. It will also suspend reinvestment of a government securities fund from the Federal Employees Retirement System Thrift Savings Plan.
These funds are invested in special issue Treasury securities, which count towards the debt limit. The Treasury's actions would reduce the amount of outstanding debt below the limit and temporarily enable it to continue to pay the government's bills on time and in full.
No federal retirees or employees will be affected, and the funds will be made in full once the deadlock is over, Yellen wrote.
As part of his concessions, McCarthy promised to approve a proposal by the end of March to tell the Treasury which payments should be prioritized if the debt ceiling is breached, GOP Rep. confirmed. Chip Roy on CNN last week.
Roy, a Texas Republican who is one of the key players in the impasse over McCarthy's speakership, warned that the outlines of the proposal are still being worked out, noting that there are several versions of a payment prioritization plan circulating within the House GOP .
But choosing to pay one set of obligations instead of another can lead to legal challenges, as well as political and ethical dilemmas. For example, lawmakers would have to decide what should be paid first — monthly Social Security payments to the tens of millions of seniors and Americans with disabilities, salaries of federal workers and the military, or interest on US debt to a large number of investors, many of them. foreign.
Government watchdogs and economic experts warned that Congress and the president should address the debt ceiling as soon as possible.
"The debt ceiling is too important to turn into a game of chicken, and default should never be suggested by those with a fiduciary responsibility to run the nation," said Maya MacGuineas, chair of the committee for a responsible federal budget.
"Politicians who are rightly concerned about the nation's unsustainable borrowing trajectory should take a tough stance against new borrowing and oppose legislation that would increase debt while offering specific solutions to reduce debt already on the books. control, rather than threatening not to pay the bills. on loans that have already been taken out," she continued.
Given the contentious political environment, a deal was likely to be reached very late in the game or increasingly, Moody's Investors Service said in a report Thursday. If Congress fails to do so, Moody's expects the US government to prioritize the timely and full payment of its debt service obligations over other payments.
"Yet, in our view, a debt limit deadlock is likely to be resolved before a missed interest payment occurs, due to public, political and financial market pressures on Congress, which reflect concerns about the potentially dire consequences a missed payment could have on the financial markets and the financial markets. economy," the report said.
Does US owe China money?
Who is the US in debt to? National Debt The public owns more than $24.29 trillion of the national debt. 1 Foreign governments hold a large portion of government debt, with the remainder held by U.S. banks and investors, the Federal Reserve, state and local governments, mutual funds, pension funds, insurance companies, and savings bond holders.
What would happen if China called in US debt?
Consequences of Being in Debt to the Chinese If China reclaimed all of its US assets, the US dollar would fall in value while the yuan would appreciate, making Chinese goods more expensive.
How much money does America owe China?
In 2021, China will own $1,095 trillion of the total $28 trillion US national debt. This may interest you : Sadr protests: Iraqi politics needs a complete overhaul.
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Is America's debt a problem?
National Security Issues The higher the national debt gets, the more the US is seen as a global credit risk. This may interest you : Kevin McCarthy elected House speaker, but at a cost. This could affect the US's ability to borrow money in times of increasing global pressure and could put us at risk of defaulting on our obligations to our allies, especially in times of war.
Can the US pay off its debt? No." Without tax increases for citizens or businesses, cuts or restrictions on government spending, or a combination of both, the national debt will continue to rise to a new limit set by Congress, and then this cycle will repeat.
Why is US debt a problem?
The higher the national debt becomes, the more the US is seen as a global credit risk. To see also : Main Street lands record $154 billion in federal contracts, but fewer small businesses benefit. This could affect the US's ability to borrow in times of mounting global pressure and could put us at risk of defaulting on our obligations to our allies, especially in times of war.
Does America have a debt problem?
Because the government almost always spends more than it takes in through taxes and other revenues, the national debt continues to rise. To finance federal budget deficits, the U.S. government issues government bonds, also known as Treasuries.
What happens if the U.S. doesn't pay its debt?
It would have major consequences for the economy and the people of the US: a default would raise interest rates, which would then raise prices and add to inflation. The stock market would also suffer, as US investments would no longer be seen as safe as they once were, especially if the US credit rating was downgraded.
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What country owes the most debt to the US?
Japan is the largest holder of US debt.
Who is the US in debt to? About a third of the public's debt is held by foreign holders. Foreign countries total about $7.4 trillion in US debt at the end of June, the most recent month of available data. Japan is the largest holder with about $1.2 trillion in government bonds.
What foreign country owes the US the most debt?
Securities in billions of dollars
Brazil 237.6
India 212
Who has the most debt to the US?
Foreign governments hold about $7.7 trillion in US debt, according to the Treasury Department, though no country owns more than 5% of the total. According to the most recent data available at the end of November, Japan was the largest foreign holder of US debt, with $1.3 trillion.
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