Where are things at as the United States pushes back the deadline for the debt ceiling? | Business and Economy News

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US Treasury Secretary Janet Yellen has said the government will run out of funds to cover its financial obligations by June 5 if the current spending cap of $31.4 trillion is not raised by here there.

Yellens’ announcement, which came in the form of a letter to the US Congress on Friday, pushes back the deadline for a potential default from an earlier estimate that the Treasury could run out of cash as early as June 1.

During the week of June 5, the Treasury is expected to make about $92 billion in payments and transfers, which includes a quarterly adjustment of nearly $36 billion to the Social Security and Insurance Trust Funds. -illness, Yellen wrote in the letter.

Therefore, our projected resources would be insufficient to meet all of these obligations, she said.

The extended deadline gives lawmakers more leeway as they try to reach an agreement to increase the US spending limit.

Congress is tasked with raising the nations debt ceiling, and Republican lawmakers have used their majority in the U.S. House of Representatives as leverage to demand cuts to social programs in exchange for an increase in the ceiling as a default looms on the horizon.

Where are things?

Over the past few weeks, House Republican Majority Leader Kevin McCarthy has been in talks with President Joe Bidens’ 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 complete the job but did not know if a deal would be reached within 24 hours.

The two sides are considering a deal that would raise the debt ceiling for two years until the next presidential election, cut spending for 2024 and impose a 1% cap on spending growth for 2025.

It’s unclear whether the eased deadline will give lawmakers the space to iron out final details or whether conservatives will dig their heels in and use the extra time to push for bigger concessions and spending cuts. Most lawmakers have left for Memorial Day weekend, but have been warned they will have to show up in Washington, D.C. to vote on a deal in case 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 Democrats.

What does each party want?

Republicans have pushed for more restrictive requirements on benefits such as food aid and health care for low-income recipients the party wants jobs, saying the country needs to cut spending levels.

Democrats are resisting new work requirements for benefit programs and have been quick to point out that under former President Donald Trump’s administration, Republicans seemed unconcerned about increasing spending limits.

Media reported on Thursday that McCarthy and Biden were close to reaching a deal that would include increased military spending, recover unused COVID-19 relief funds currently earmarked for things like disaster relief and research. on vaccines, and cut funding for the Internal Revenue Service. (IRS).

More importantly, the agreement would include a cap on non-military discretionary spending in areas such as housing, education, traffic 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 steep cuts Republicans had previously proposed.

What happens if the United States does not meet the deadline?

The risks of default are also considerable, with Yellen previously warning that a default would be an economic and financial disaster that would increase the cost of borrowing in perpetuity.

Some rating agencies have warned they could downgrade US credit, which would increase borrowing costs and undermine the country’s global standing.

When Republicans in 2011 also pushed for spending cuts in return for a debt ceiling increase and triggered a temporary suspension of many government services, the Government Accountability Office found that the delayed ceiling increase was costing US about $1.3 billion in increased borrowing costs in a single year.

A recent analysis by Brookings, an American think tank, found that lower borrowing rates, which the government is currently enjoying, would save it around $50 billion next year and more than $750 billion over the next 10 years. The analysis indicates that if some of this benefit were lost by allowing the debt limit to bind, the cost to the taxpayer could be significant.

Another report from Moodys, an economic analysis group, also found that failure to reach an agreement by the deadline could lead to a 1.6% increase in unemployment, even if the ceiling was raised shortly. time after.

The question of what effect a default would have on government services and which payments the Treasury would prioritize also remains an open question.

In 2011, a deal was struck just two days before the Treasury felt it would run out of money to meet its financial obligations.

The United States has met its financial commitments since 1789 by paying its bills on time. Congress has prevented the 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 salaries.

The Biden administration has not specified which payments it would prioritize in the event of a default.

However, a recent report by National Public Radio in the United States found that $12 billion in benefits for veterans and $47 billion for Medicare recipients are due on June 1, $25 billion in benefits for Social Security is due June 2 and $4 billion in federal payroll is due. June 9.

If a default should occur, these payments may not be honored.

If Congress fails to raise the debt ceiling, it would cause serious hardship for American families, hurt our position as a global leader, and raise questions about our ability to defend our national security interests, reads the statement. letter from Yellens. I continue to urge Congress to protect the faith and credit of the United States by acting as soon as possible.

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