Global financial crisis looms as US risks default on national debt
Peter Uzoho with the agency report
The global financial market may be heading for a looming crisis as the United States currently faces the risk of defaulting on its national debt in October. US Treasury Secretary Janet Yellen gave the hint yesterday while warning congressional leaders that the country was on track to default on the national debt in October if the White House and Congress were unable raise the debt ceiling.
In a letter to congressional leaders, Yellen said the Treasury Department would likely run out of cash and exhaust “extraordinary” measures to keep the federal government within its legal borrowing limit at some point next month.
She said: “Once all available measures and available liquidity are fully exhausted, the United States of America would not be able to meet its obligations for the first time in our history.
“Given this uncertainty, the Treasury Department is unable to provide an accurate estimate of the duration of extraordinary measures. However, based on our best and most recent information, the most likely outcome is that liquidity and extraordinary measures will be exhausted during the month of October. “
Yellen addressed the letter to President Nancy Pelosi, House Minority Leader Kevin McCarthy, Senate Majority Leader Charles Schumer, and Senate Minority Leader Mitch McConnell.
The Treasury Department has reportedly taken so-called extraordinary measures to prevent the United States from defaulting on the national debt since the federal debt limit was reimposed on August 1.
If the Treasury Department lacks the means to avoid default without borrowing more money, the inability of the United States to pay its debts could send debilitating shockwaves through the financial system.
Yellen had urged lawmakers for months to raise the debt limit before it was reimposed in August, warning that a delay could “cause irreparable damage to the US economy and global financial markets.”
She has since pleaded with Congress to give the Treasury the capacity to pay debts already approved by previous presidents and majorities in Congress.
According to her, “waiting until the last minute to suspend or increase the debt limit can seriously damage business and consumer confidence, increase short-term borrowing costs for taxpayers and negatively impact the credit rating. United States credit.
“At a time when American families, communities and businesses are still suffering from the effects of the ongoing global pandemic, it would be particularly irresponsible to endanger the confidence and credit of the United States. “
However, Democrats and Republicans are stuck in an impasse over the responsibility to protect the full faith and credit of the United States.
The White House and Democratic leaders plan to tie an increase in the debt limit to another government funding bill to pass, challenging Republicans to trigger both a government shutdown and a default by opposing the measure.
“We expect Congress to act quickly to suspend the debt limit and protect the full faith and credit of the United States and we expect them to do so in a bipartisan fashion, as they have. done three times under the previous administration, “said a White House official. official reportedly said Tuesday.
But Republicans refused to raise the debt ceiling unless spending cuts and debt reduction programs were matched.
Democrats could also try to block an increase in the debt ceiling in the pending $ 3.5 trillion bill on infrastructure, climate and social services that they are trying to squeeze through budget reconciliation.
Passing the bill would only require simple majorities in each party, but the package might not be ready for a vote until the United States breaks the debt limit.
Yellen had warned for months that the United States could default as early as October, explaining that the economic impact and fiscal response to the coronavirus pandemic make it difficult to determine exactly when.