Why the US might default on June 1 and what that means
The United States could declare default as early as June 1 if Congress does not reach an agreement in time. It may mean that the central government can no longer pay its debts, nor provide funds for pensions and other services. To avoid that, Democrats and Republicans must come to an agreement.
The United States can declare default within a few weeks. In particular, Thursday, June 1. Treasury Secretary Janet Yellen has written a letter to the US Congress – the second after the first one sent on May 1 – asking for the ban on parliamentary action to raise the debt ceiling be lifted. Otherwise, there could be serious consequences for US consumer and business confidence.
That’s an official limit: “We still estimate that the Treasury is likely It will not be able to fulfill all government obligations Unless Congress takes action to raise or suspend the debt limit by early June, possibly as early as June 1,” Yellen wrote.
What is the debt ceiling and why is it stuck?
the debt ceiling It is the maximum amount that the government can borrow, by law. A kind of legal limit for public debt. Regularly, Congress must vote to raise this threshold, or suspend it temporarily. In this way, the government is allowed to borrow new money, to pay off previous debts and to bear all the expenses necessary to run the country.
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Debt ceiling voting occurs at fairly regular intervals, as US governments tend to spend more than they take in (public debt has increased by $7.8 trillion under the Donald Trump administration). Now, however, Republicans and Democrats find themselves caught in one Negotiations that lasted for weeks did not lead to anything. The cap is currently set at $31.4 trillion, and since the beginning of the year — the cap was reached in January — the Biden CEO has resorted to “extraordinary” accounting measures to avoid going over it.
Republican Speaker of the House Kevin McCarthy said today:We’re not nearly doneOn the other hand, the Republicans are demanding significant cuts in public spending to give them the right to vote, a condition rejected by the Democrats, who in turn propose fiscal containment measures that do not satisfy the Republicans. For McCarthy, even staff meetings are “not productive at all.” Tomorrow, President Joe Biden will meet him and other parliamentary leaders at the White House: the second summit will be in May.
What if the United States defaults?
Treasury Secretary Yellen gave a specific deadline: As early as June 1, government coffers could find themselves without liquidity, and without the possibility of borrowing more money to meet the debt ceiling. From now on, it will be question of “days or weeks” Before even the private accounting maneuvers that had been carried out up to that point would fade away and paralyze the government. Next week, the Secretary will provide another update to Congress
Among the measures that will be suspended in the event of default are the payment of the tax credit for families with children to 30 million families, and delayingPensions disbursement and social assistance measures for 50 million elderly people. And these are just some of the federal measures that require money from the Washington government in the United States. Moreover, default also means that the United States is unable to pay its debts, which can have a very negative impact on the financial markets.
Same thing in a video shared on social media President Biden sounded the alarmIt would be devastating for the United States and, frankly, the whole world. There would be a recession, everything would change. It would really have a profound effect on the way we live our lives. We won’t find We ourselves are no longer seen as the economic leaders of the world, and we cannot allow that to happen. It is unimaginable. No serious person, on either party, thought this was an option.”
default It never happened in US history. The risk had already occurred twice during Barack Obama’s administration, in 2011 and 2013, but in both cases an agreement was reached just in time.
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